RIM Bulls Get Ahead of Themselves

It's a good time to be a Research In Motion (NASDAQ: BBRY  ) shareholder -- no doubt about it. Taking Nov. 23 trading activity into account, RIM's share price is up about 35% the past week. What's all the fuss? As discussed in an article last week, RIM is officially unveiling its latest and greatest smartphones and BlackBerry 10 OS on Jan. 30.

By most accounts, the pending release of the new BlackBerry OS and phones are worthy of investor excitement. There are a slew of new, and pretty slick, features that have the RIM crowd feeling giddy. Nothing wrong with that, of course. If RIM CEO Thorsten Heins and team are able to complete a return to prominence for the once high-flying smartphone maker, it would be one of the best turnaround stories in recent memory.

A few BlackBerry 10 specs
According to Heins, the new BlackBerry 10 will offer a host of leading applications across all categories. Though specifics are (naturally) few, BlackBerry 10 users should have all the apps they want or need out of the gate, something Nokia's (NYSEL NOK) Lumia running the Windows 8 OS is struggling with. Navigating the BlackBerry 10 will employ RIM's new BlackBerry Flow to move in and out of the BlackBerry Hub.

Though Heins has made it clear RIM will focus on what it does best -- cater to the professional mobile user rather than try to be all things to all people -- the BlackBerry Balance will offer solutions to alternate between work and personal usage. Maintaining data security, long one of RIM's strong suits, will remain a focus for all users. It will be interesting to see how well the BlackBerry Keyboard app functions. The keyboard learns a user's typing idiosyncrasies, then adapts itself based on the individual.

Sounds good, but this is getting out of hand
Trading on momentum can be a dangerous thing, particularly if you're a mid to long-term investor. With this kind of share price explosion, RIM's pending phones and OS better exceed expectations. Anything less, and the fall in RIM share price will be audible. And it's not just individual investors that have gotten themselves worked up into a lather.

Demonstrating how tenuous momentum can be, Jeffco analyst Peter Misek has upgraded RIM from underperform, to hold. Okay, based on early indications of the new phones and OS, that seems warranted. But that's where reality takes a departure: Misek proceeds to raise his price target for RIM to $43 a share! Even scarier, his line of reasoning is 'BB10 has a better perception in the market than previous versions.' Misek expects RIM to return nearly 400%, based on perception? Unfortunately, perception doesn't stand the test of time, results do.

Don't ignore the hurdles
As Nokia can attest, making headway in the smartphone market is no easy task. Even the biggest bully on the block, Apple (NASDAQ: AAPL  ) and its iPhone 5, is dealing with increasing competition. Google (NASDAQ: GOOGL  ) released it Nexus smartphone, in partnership with LG, several months ago. Already, Nexus is selling a million units a month, and we all know the Android OS dominates the mobile market.

And Google isn't even the latest significant player in an already crowded smartphone marketplace. With Apple continuing to generate almost obscene profits quarter after quarter, others were going to take their shots. Microsoft (NASDAQ: MSFT  ) Windows Phone 8 OS is already running Nokia, HTC, and Samsung smartphone offerings. And after the recent release of its own tablet, make no mistake, Microsoft will be in the smartphone manufacturing business itself before long.

To its credit, RIM's revenue has leveled off the past couple of quarters, reversing a trend of negative top-line growth. Getting a hold on operating expenses has aided in RIM's efforts to minimize its bottom-line losses. And with $2 billion in cash and no long-term debt, RIM will continue its battle back from obscurity in a position of financial strength.

Heins and the RIM team appear to be on the right track, which is why I'm cautiously optimistic -- cautiously. It's simply too early to completely disregard RIM's performance these past couple of years based solely on what remains an unknown quantity. A 35% jump in share price in one week, based only on speculation, is too much, too soon.

With the release of its own tablet, along with the widely anticipated Windows 8 operating system, Microsoft is looking to make a splash in this booming market. In this brand-new premium report on Microsoft, our analyst explains that while the opportunity is huge, the challenges are many. He's also providing regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (5) | Recommend This Article (4)

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 November 23, 2012, at 9:14 PM, ronbeasley wrote:

    Billionaire Prem Watsa, who has an enviable long-term investment record, has recently accumulated 9.9% of RIMM at, on average, higher prices than today's, and joined its board.

    But no, pay no attention to him! Or to a seasonoed analyst, for that matter. Instead, listen to a subscription salesman from that aptly named "fool".

  • Report this Comment On November 23, 2012, at 10:31 PM, Arthur1111 wrote:

    Montley Fool is AAPL fan and RIMM basher. I am not surprised with the negative tone. We are very bullish on RIMM. Don't worry about us, we are happy making money.

    Sell AAPL and buy RIMM before it is too late.

  • Report this Comment On November 24, 2012, at 6:22 AM, mikecart1 wrote:

    RIMM is the better buy short term as far as a stock simply because the expectations are so low and the price has dropped so much. Any release at all and this stock can go up. That is how low the expectations are after months of delay.

    Long-term, it is still an obsolete design and wayyyy behind what current buyers (teens and young adults) are into.

  • Report this Comment On November 24, 2012, at 2:36 PM, TimmyBee123 wrote:

    Misek put conditions on his $43/share prediction. It is analyzing the affect of increased revenue on stock prices. How is that guessing?

  • Report this Comment On November 24, 2012, at 2:48 PM, paulmcghee wrote:

    The author is wise to urge caution about RIM's medium term prospects. But he also need to check his facts. He says: "Misek proceeds to raise his price target for RIM to $43 a share!"

    Wrong. Misek's target price is $10, though he also discusses an (unlikely) $43 upside scenario:

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