Has Research In Motion Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Research In Motion (NASDAQ: BBRY  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • 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 mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. 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%

29%

Pass

 

1-year revenue growth > 12%

(25.2%)

Fail

Margins

Gross margin > 35%

29.4%

Fail

 

Net margin > 15%

(4.1%)

Fail

Balance sheet

Debt to equity < 50%

0%

Pass

 

Current ratio > 1.3

2.2

Pass

Opportunities

Return on equity > 15%

(6.4%)

Fail

Valuation

Normalized P/E < 20

69.39

Fail

Dividends

Current yield > 2%

0%

Fail

 

5-year dividend growth > 10%

0%

Fail

       
 

Total score

 

3 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Research In Motion last year, the company plunged four points, bringing its total two-year loss to five points. A big revenue contraction, drops in margins, and negative earnings on a GAAP basis contributed to the drop, and the stock has fallen about 35% over the past year, albeit having recovered more recently from even more severe losses.

Back in the day, Research In Motion's BlackBerry mobile phones were state of the art and the device of choice for business consumers. Because of security concerns, businesses were slow to adopt rival mobile platforms from Google (NASDAQ: GOOGL  ) and Apple (NASDAQ: AAPL  ) despite their unquestioned popularity away from the office. Gradually, though, those security concerns have been met, bridging RIM's last stretch of moat against its competitors.

As a result, RIM now sports just a 1.6% U.S. market share, down sharply from 8.5% a year ago. Worldwide, the company is fighting with perennial challenger Microsoft (NASDAQ: MSFT  ) , which has also struggled in the smartphone industry, to hold onto the No. 3 spot in market share. Yet with Google's Android running 75% of all smartphones and Apple taking 15%, whether RIM can sustain a global market share that just fell below 5% isn't all that important to the big picture.

Most analysts believe that RIM's coming BlackBerry 10 operating system is its best -- and probably last -- chance at a full-blown recovery. Unless it succeeds, customers, wireless carriers, and developers are all likely to stop supporting RIM's products as they lose confidence in the company's ability to deliver what consumers want. Investors have bid up shares as they hope for a recovery, but neither its chances nor those of Nokia (NYSE: NOK  ) -- which is largely in the same boat as RIM in terms of its falling cell phone market share -- look all that promising right now.

For RIM to survive and recover, it needs to get customers interested in its products again. If BlackBerry 10 can't do the trick, RIM doesn't really have many arrows left in its quiver as a follow-up.

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.

Like Research in Motion, Nokia has been struggling in a world of Apple and Android smartphone dominance. However, unlike RIM with its proprietary operating system, Nokia has banked its future on its next generation of Windows smartphones. We've created a new premium report that digs into both the opportunities and risks facing Nokia to help investors decide if Nokia is a buy or a sell right now. To get started, simply click here now.

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.


Read/Post Comments (5) | Recommend This Article (0)

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 05, 2012, at 7:27 PM, dd27 wrote:

    This is a backward looking article -- what about all the new and unique features of BB10?

    And the positive feedback from carriers and analysts?

    I think Rim a some very special things going for it right now -- and I also think investing is about looking FORWARD

  • Report this Comment On December 05, 2012, at 9:55 PM, digitally404 wrote:

    Good article. Although RIM is not the perfect stock at the moment, it does have tremendous opportunity.

    BB10 is RIM's new OS for the next decade and it will be on multiple products next year. They will march on with it.

    They may never become as big as Apple ever has, but they are focusing on #3 spot, and I think it's a very realistic goal for them. Blackberry is a household name, and their product is focused on quality for the professionals out there.

    They already have a market, yet they haven't even sold a single BB10 phone yet.

    I'm a phone user and I rely heavily on communications and not so much on apps. A blackberry is the perfect option for me considering all the choices out there (and that's considered BEFORE the BB10 has hit the market).

    I doubt I'm the only one that feels this way.

  • Report this Comment On December 06, 2012, at 6:26 AM, Arthur1111 wrote:

    Another useless and bashing article from the FOOL. Investment is really simple: You invest in the future, not in the past. This is why Apple is sliding and RIMM is climbing.

    BB10 is the future for the next few years.

  • Report this Comment On December 06, 2012, at 8:53 AM, magnaman1969 wrote:

    When you double your money in 2 months time and then analysts come out of the woodwork raising targets even further....it's a perfect stock.

    Apple is deflating daily....RIMM is on the rise.

  • Report this Comment On December 06, 2012, at 8:59 AM, mirra88888 wrote:

    It is amazing to me that everything you disci

    Used in your article belongs to the past and you completely ignored the possibilities that everyone is getting excited about is about Rim's future.

    The analysts from

    The analysts from Motleys Fool are all so down on Rim. When time and time again you all fail to realize that just like in Rim Nokia and Palms, past performances does not guarantee a bright future nor does it guarantee a future failure,

    Everyone who has looked at BB10 be leaves that the phone is superior to anything else on the market.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2140518, ~/Articles/ArticleHandler.aspx, 9/16/2014 9:35:34 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement