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 and then decide whether Research In Motion (Nasdaq: RIMM  ) 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% 53.1% Pass
  1-Year Revenue Growth > 12% 19.4% Pass
Margins Gross Margin > 35% 42.9% Pass
  Net Margin > 15% 14.3% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 1.94 Pass
Opportunities Return on Equity > 15% 33.5% Pass
Valuation Normalized P/E < 20 4.08 Pass
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   7 out of 10

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

Since we looked at Research In Motion last year, the smartphone maker has lost a single point. But the falling net margins that produced that loss are only one symptom of the big problems that the company is facing right now.

Once upon a time, Research In Motion dominated the smartphone space. Its BlackBerry was the phone of choice for security-conscious business users, whose corporate budgets opened the door to high-margin business for the smartphone maker. The company still boasts 70 million accounts worldwide.

But the past year has been pretty much an unqualified disaster for Research In Motion. Apple's (Nasdaq: AAPL  ) iPhone, along with smartphones powered by Google's (Nasdaq: GOOG  ) Android operating system, have seen their share of sales double in the past year, while BlackBerry has lost huge amounts of market share worldwide. RIM's PlayBook tablet hasn't performed as well as many had hoped, either. And worst of all, Research In Motion suffered a massive service outage in October that spanned the globe and threw a huge wrench into the company's reputation.

After its huge share-price drop, the biggest question for RIM shareholders has been whether the company would become an acquisition target. But with Microsoft (Nasdaq: MSFT  ) having made a partnership with Nokia (NYSE: NOK  ) , the Redmond giant doesn't seem like a candidate. Fellow Fool Rick Munarriz suggests that Dell (Nasdaq: DELL  ) or Hewlett-Packard (NYSE: HPQ  ) might make good buyers, but it all depends on their willingness to gamble on a comeback.

Research In Motion gives investors a vital lesson in how important it is for successful companies to keep looking forward. By missing out on changes in the smartphone market, RIM's fall from near-perfection is a sad story that could keep getting sadder in the coming year.

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.

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

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our "13 Steps to Investing Foolishly."

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Microsoft, Google, and Apple. Motley Fool newsletter services have recommended buying shares of Microsoft, Dell, Apple, and Google, as well as creating bull call spread positions in Apple and Microsoft. 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 (8) | Recommend This Article (3)

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 03, 2011, at 2:13 PM, demodave wrote:

    "But the past year has been pretty much an unqualified disaster for Research In Motion. Apple's (Nasdaq: AAPL ) iPhone, along with smartphones powered by Google's (Nasdaq: GOOG ) Android operating system, have seen their share of sales double in the past year, while BlackBerry has lost huge amounts of market share worldwide. RIM's PlayBook tablet hasn't performed as well as many had hoped, either. And worst of all, Research In Motion suffered a massive service outage in October that spanned the globe and threw a huge wrench into the company's reputation."

    Past performance does clearly not guarantee future results. I know I'm an Apple fan, and I am long AAPL (on sheer luck in many ways, but I am still persistent), but the iPhone redefined the phone market. Android would not exist if the iPhone had not been released. RIM is dead in the water. And by that I mean at the bottom of the ocean.

    It is (at least in my opinion) foolish (lowercase) to cite RIM's success on several metrics at this time, because the stock is basically only "valuable" as a result of its failures. It is a pure speculation stock.

  • Report this Comment On December 03, 2011, at 2:28 PM, DoctorLewis4 wrote:

    RIM = RIP

  • Report this Comment On December 03, 2011, at 4:18 PM, jelp2 wrote:

    Seriously, Rim is not going anywhere. So they had a bad year. Apple has had a couple of them. To say Android would exist without the release of the iPhone is also to say the iPhone would not exist without the release of BlackBerry. Apple did not "invent " their technology, they remade it their way.

    RIM has zero debt, and an over blown outage, shipped 14.1 million devices this past quarter, down just .2mil from this time last year, which was their record highest quarter ever.

    I definitely am not saying they aren't without fault, but with everybody jumping on the RIM demise wagon makes it seem even worse. It's all stems from analysts and brokers and EPS than the company as a whole.

  • Report this Comment On December 03, 2011, at 4:37 PM, sikiliza wrote:

    RIM is dead:

    1. The Co-CEO management structure is a stumbling block

    2. Their failure to invest in R&D and product development is now catching up with them

    3. Their culture is not conducive to innovation

    4. We do not know how many customers are waiting in line for their upgrades to come in or contracts to expire so they can switch over

    5. It takes a long time to turn the tide around in the device space when you mess up

    6. They may have an impressive balance sheet but their business is broken much in the same way as Nokia's is.

    I would not pick up RIMM at anything above $10

  • Report this Comment On December 03, 2011, at 4:50 PM, macgregor45 wrote:

    I don't follow this company, but I do follow their competition. Doesn't look good.

    Netflix of the mobile world. Plenty of downside left, it appears. Not so much upside.

  • Report this Comment On December 03, 2011, at 9:35 PM, Bunnyturd wrote:

    So sick and tired of these lazy writers that churn out dozens of these garbage articles by applying the same formula on each stock.... without using any real thought or analysis.

    The goal here is clearly to churn out articles in order to get paid rather than provide any reliable information.

    These articles are worse than worthless. A key metric of any company is the growth rate. This article seems to suggest RIM is growing rapidly as it "passes" two of these tests. Any investor with a brain cell that follows RIM will tell you that RIM not only stopped growing several quarters ago, its quarterly revenue and EPS is now shrinking compare to a year ago for several quarters now.

    For example, Q3 which RIM will report numbers on Dec 15... the company will report GAAP earnings of around $0.50 a share.. compare to $1.74 a share a year ago. Does that sound like growth to you??

    Dan Caplinger, if you are too lazy to write real articles then you might need to get a real job.

  • Report this Comment On December 04, 2011, at 1:23 AM, somethingnew wrote:

    RIM was the perfect stock to short along with Groupon. It might have some short term potential for gains now but I have alot of doubts about it's future.

  • Report this Comment On December 05, 2011, at 4:26 AM, Karin123 wrote:

    Europe is down not out, according to a recent speech by Christian Noyer, Governor of Banque de France. He concludes: History has taught us that financial crises can be extremely violent. The current turmoil in Europe is no exception. In the most intense phases, it is difficult to imagine that there is light at the end of the tunnel. But history has also taught us that crises provide opportunities for reform and progress. We live in democracies and have to accept that political decisions follow their own process and obey their own constraints. But I am confident that the euro area will emerge from this period stronger and more cohesive. There are, indeed, some reasons for optimism. On the supply side, our economies are robust and dynamic. Corporate balance sheets are very strong. Our banking system is robust and well supervised. Emerging economies are well placed to enjoy strong and sustainable growth in the years to come therefore contributing to sustained global demand. Above all, the community of nations seems ready to face the extraordinary challenges we are confronted with.

    read it on forexpros.com

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