Is Palm a Terrible Stock?

By Matt Koppenheffer | More Articles
June 3, 2009 | Comments (3)

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Sometimes, unloved stocks are good stocks that have just rubbed investors the wrong way, and actually represent great investment opportunities. Quite often, though, unloved stocks are unloved because there is something very wrong with either the stock or the company behind the stock.

In The Motley Fool's 135,000-member CAPS community stocks are rated on a scale of one to five stars based on the outperform and underperform ratings given to them by CAPS members. Stocks with the worst ratios end up with a one-star rating -- which is the CAPS' equivalent of a flashing red warning beacon.

Palm (Nasdaq: PALM ) is one of the stocks that has landed that dreaded one-star rating. Although the company was an awe-inspiring pioneer of the mobile technology market during the Internet boom, Palm fell on hard times after the bubble burst. It's since found itself on the losing end of the competition with foes such as Research In Motion (Nasdaq: RIMM ) and Apple (Nasdaq: AAPL ) .

Since December, Palm's stock has absolutely been on fire, multiplying in value more than eight times. The CAPS community, however, has not budged from its one-star rating.

So what gives? Let's take a look at how Palm stacks up against comparable companies.

Company	TTM Net Profit Margin	One-Year Revenue Growth	Price-to-Earnings Ratio	CAPS Rating (5 max)
Palm	(72.1%)	(33.6%)	NM	*
Nokia (NYSE: NOK )	6.1%	(12.1%)	14.9	****
Qualcomm (Nasdaq: QCOM )	15.2%	14.4%	43.6	****
Apple	14.9%	17.2%	25.1	***
Motorola (NYSE: MOT )	(15.3%)	(19.0%)	NM	**
Research In Motion	17.1%	84.1%	25.1	**

Source: CAPS and Capital IQ, a division of Standard & Poor's. TTM = trailing 12 months. NM = not meaningful.

What we can take away from this chart is that (1) there are companies in the mobile communications space that have put up better financial figures than Palm and (2) there are definitely stocks that the CAPS community thinks are much better bets.

To get more specific, let's take a look at why CAPS member SpoilsofWar recently gave the stock a thumbs-down:

Company doubled down on one product. The Pre cannot save a dying company. This company is running on fumes even if the Pre is a hit. This will drop significantly when the hype dies down, not enough phones are manufactured, and apple and blackberry crush them with their new releases in june and july.

Now I'm going to toss the ball in your court -- so what will it be? Is Palm a stock worthy of a rock-bottom rating? Or has the CAPS community overlooked the company's potential? Head over to CAPS and let the 135,000 community members know what you think.

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Fool contributor Matt Koppenheffer does not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFool. Palm readers have always been kind to the Fool’s disclosure policy.

Read/Post Comments (3) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

Report this Comment On June 03, 2009, at 5:11 PM, Jamison046 wrote:

Well, to start lets take a look at why CAPS member SpoilsofWar's comment is absolutely incorrect. Palm has NOT doubled down on one product. The Pre is the first of many new products that will be operating on Palm's new Linux Based operating system WebOS. It is not the Pre that has the tech community (and soon everyone else) so excited. It is WebOS!!! Just like Blackberry OS is the software platform for several different Blackberry models, WebOS will be the software platform for several different Palm models. Pre is just the first. Google search "Palm Eos" for the next rumored Palm model to run WebOS.
Maybe I am the fool. But here is what I see. Around 2002 RIM introduced their first real smartphone which ran an early version of Blackberry OS. At that time RIM's was trading under $4. Seven years later they are trading at $80.
I love the Blackberry Bold and I have the iPhone. However, I am amazed by watching all the video demos of what WebOS can do! This OS is amazing now and it is just the beginning platform upon which Palm can perfect upon to be the best smartphone maker in the business. And In the next few years all cell phones will be smartphones. What can I say, I like Palm.
Report this Comment On June 03, 2009, at 6:23 PM, AZ123 wrote:

It's such a coincidence that the MotleyFools were silent during Palm's recent four day surge and now, after one day of pull back, they pop up again with negative bias based on mere opinion.
No offense, Spoils, but next time, try something called technical analysis, rather than personal opinion based on nothing, as your argument.
All MotleyFool writers and posting members seem to believe that there isn't room for another good product for folks who don't want an iPhone.
Go ahead and gobble up all the short sightedness. It seems to be the MotleyFool way...
Peace!
Report this Comment On June 03, 2009, at 6:42 PM, InfoThatHelp wrote:

Stocks are the units of a company, good companies are collections of good stocks, bad companies bad stocks. Palm has a great product, a good heart and a good collection of people. That makes Palm a good company, and Palm stocks a good stock in the market.
Rim has no great products the likes of Pre and WebOS, Rim gives away its products, Rim management is chaotic, abusive, dysfunctional and ruthless. Rim employees are status quo driven, they always drive out the productive people who threaten their jobs. Rim's product lifecycles are ridiculously short and heavily bug ridden, with horrific customer service. Rim has a habit of running up gargantuan expenses. These make Rim a bad company, and the Rim stock a bad stock.

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