Is Research In Motion the Perfect Stock?

Everyone would love to find the perfect stock. But will you ever really find a stock that gives you everything you could possibly want?

One thing's for sure: If you don't look, you'll never find truly great investments. So let's first take a look at what you'd want to see from a perfect stock, and then decide if Research In Motion (Nasdaq: RIMM  ) fits the bill.

The quest for perfection
When you're looking for great stocks, you have to do your due diligence. It's not enough to rely on a single measure, because a stock that looks great based on one factor may turn out to be horrible in other ways. The best stocks, however, excel in many different areas, which all come together to make up a very attractive picture.

Some of the most basic yet important things to look for in a stock are:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales don't mean anything if a company can't turn them into profits. Strong margins ensure a company is able to turn revenue into profit.
  • Balance sheet. Debt-laden companies have banks and bondholders competing with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Companies need to be able to turn their resources into profitable business opportunities. Return on equity helps measure how well a company is finding those opportunities.
  • Valuation. You can't afford to pay too much for even the best companies. Earnings multiples are simple, but using normalized figures gives you a sense of how valuation fits into a longer-term context.
  • Dividends. Investors are demanding tangible proof of profits, and there's nothing more tangible than getting a check every three months. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Research In Motion.

Factor What We Want to See Actual Pass or Fail?
Growth 5-Year Annual Revenue Growth > 15% 58% pass
  1-Year Revenue Growth > 12% 27.8% pass
Margins Gross Margin > 35% 44.6% pass
  Net Margin > 15% 17.2% pass
Balance Sheet Debt to Equity < 50% 0% pass
  Current Ratio > 1.3 1.98 pass
Opportunities Return on Equity > 15% 40.9% pass
Valuation Normalized P/E < 20 12.56 pass
Dividends Current Yield > 2% 0% fail
  5-Year Dividend Growth > 10% 0% fail
       
  Total Score   8 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

With a score of 8, Research In Motion comes pretty close to perfection, lacking only shareholder dividends. Yet while these statistics show how successful Research in Motion's past has been, the company's future seems a lot less certain right now.

Although you might not know it from all the hype that Apple's (Nasdaq: AAPL  ) iPhone has gotten, Research In Motion's BlackBerry smartphone line still commands the U.S. market, with market share of 37.3%. That's largely because businesses still gravitate heavily toward using BlackBerry phones.

But competitors may be starting to erode that corporate dominance. According to Apple, as many as 80% of Fortune 500 companies are testing iPhones for corporate use. Motorola (NYSE: MOT  ) and Dell (Nasdaq: DELL  ) are also aiming smartphone products to business customers.

Meanwhile, Research In Motion gave Apple nearly a year's head start in the tablet space, and some have been disappointed with its PlayBook offering. Relying on the traditional reluctance of big companies to adopt new technology is a dangerous game for Research In Motion to play.

To be a perfect stock, a company not only has to put up a proven record of strong performance but also must show that it can preserve that record into the future. Research In Motion has the enviable track record so many other companies lack, but sustaining its dominance in an increasingly competitive space will prove much harder.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Research In Motion to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Fool owns shares of Apple, which is a Motley Fool Stock Advisor selection. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (7)

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 Report this Comment icon found on every comment.

  • Report this Comment On December 01, 2010, at 11:35 AM, rickyj32 wrote:

    "and some have been disappointed by their playbook offering" who? I have not read anything negative about the playbook except that it is coming out in Feb.. All the arguements against RIM come down to sentiment. All the arguements for RIM come down to fundamentals. The next quarter coming out Dec. 16 is expected to be very strong. The quater after might be weaker, as it is before the Playbook and QNX OS phones help results. People who want to hear the bull arguement analyst Miken yesterday on Fast Money explained it very well. I am an owner of RIM at 47 dollar average price. Maybe people have missed the easy money but momentum is still building and the numerous shorts still need to cover.

  • Report this Comment On December 01, 2010, at 12:23 PM, witom1 wrote:

    you and your ilk at foolish headquarters have a hard time giving this marvelous company its due.

    the only reason i am patient with you at all is that you have had some good calls, esp. nflx.

    howsomever, you have a blind spot when it comes to rimm. we are looking at a sea change in computer hardware and delivery. the very characteristics that put rimm ahead of all competitors, will cause it to go to the lead positon in smart phones in short order.

    do yourself a favor and buy some shares. tell your mom!

  • Report this Comment On December 01, 2010, at 12:44 PM, melegross wrote:

    I disagree with the two previous posters, and think RIMM is in a more delicate state then they realize. With surveys showing thar BB's are very low in preferences, and that over 50% of BB owners wanting a different phone next upgrade, it looks as though the BB reign is over. It's just a matter of time before this begins to show in flat sales. RIMM has not met it's own numbers the last two quarters and so will not give guidance for them. A bad sign.

    The Playbook will have no apps when it comes out, and we still need evidence that there will be significant developer interest. J.P. Morgan has begun giving out iPads, and one reason is startling. Personal pleasure is that reason.

    RIMM has a lot of catching up to do, and not much time in which to do it.

  • Report this Comment On December 01, 2010, at 2:09 PM, garifool wrote:

    I read so much pros and cons!

    I think that there is a lot of love (or lack thereof) for the product when one talks about B.B and RIM in general.

    I have looked at the video that compares the coming tablet from RIM and the IPad, and was pretty impressed!

    Had I not bought my IPad, I would give it a second thought.

    But that being said, I do not know what went through the head of that analyst yesterday:not only reiterating his buy recommendation for RIM, but raising he target to $80.00!

    And without giving such a detailed research at this author did, whether one agrees or not.

    Lots to do for RIM to reach that! I am not only thinking about Apple, but Nokia seems to be given a second life!

    One can see how much analysts do have an influence over the investors. Something similar happened a few weeks ago with shares of CSIQ.

    So one can only think that those analyst have some sort of personal interest in doing such pubic moves! It certainly helped lots of Mutual funds and .. himself

    But RIM is still the no 1 long position in the TSX bear x2 ETF long position, although it has decreased from 33% to 11% .

    I guess there are good analysts too in there!

  • Report this Comment On December 01, 2010, at 3:48 PM, qp2 wrote:

    With 90% growth globally and a few percentages slippage in North America, you are missing the point entirely.

  • Report this Comment On December 01, 2010, at 3:58 PM, qp2 wrote:

    When are you going to start looking beyond your own geopolitical boundaries and factor that into your calculations?

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