Research In Motion
But Fools take note: That doesn't mean Research In Motion is still a great investment. Remember, the best investments promise both potential for shareholder returns and low risk. These days, Research In Motion offers neither.
Trading at 44 times expected 2005 projected earnings, the stock looks stretched. Analysts expect earnings growth in 2004 to be a whopping 230%. That rate should fall back to 40% in 2005 and 30% in 2006. Let's be optimistic and assume sustainable earnings growth of 25%. That translates into a rich PEG of 1.8. On an EV/S sales basis, Research In Motion is trading at more than six times 2006 sales. At these heights, that's no bargain and doesn't offer a lot of room for big returns.
At that price, it's worth taking a look at the risks. The biggest, arguably, stems from a patent infringement lawsuit filed against Research In Motion by NTP Inc. Each day it looks less likely that Research In Motion will reach an out-of-court settlement -- the preferred route, as most lawyers will attest. Nokia's
Sure, the company dominates its market. But it's in an increasingly crowded market that includes companies such as PalmOne
Then there's the revenue risk. Much of Research In Motion's Q1 revenue growth came thanks to big initial orders from a handful of carrier partners -- AT&T Wireless
Don't get me wrong, I think very highly of Research In Motion. Were I to buy a richly valued, risky tech stock, it would be among the first I would snap up. While RIM is shaping up to be a great company, that doesn't mean you should pay any price for it.
Fool contributor Ben McClure does not own shares of any of the companies mentioned.