Shares of Research In Motion (NYSE:BB) traded as high as $18.08 this morning.
You have to go all the way back to 2011 to find the last time that the BlackBerry maker's stock was trading this high, and RIM is in a far uglier place these days.
RIM has posted losses in each of its past three quarters, and Wall Street sees more red ink in the future. Analysts see revenue plunging 39% lower in its fiscal year that ends next month. On the surface, the company's a mess. RIM's yielding market share with every passing quarter, so why has the stock nearly tripled since bottoming out just four months ago?
Despite the deficits -- and Wall Street sees RIM posting losses on an annual basis until at least fiscal 2016 -- the stock bottomed out because it was just too darn cheap.
RIM closed out its latest quarter with $2.9 billion in cash. Its subscriber base is finally starting to contract, but there's still clear value in RIM's 79 million active subscribers and its solid reputation with both wireless carriers worldwide as well as enterprise customers.
These arguments were strong enough to lift the company after trading for as little as $6.22 in late September, a price tag that valued the company for just a little more than its balance sheet greenery. However, as it broke through into the double digits in November and continued to creep into the teens, it was all due to the buzz-generating hope that BlackBerry 10 will save the day.
Sell on the news
We live in a world dominated by Apple's (NASDAQ:AAPL) iOS and Google's (NASDAQ:GOOGL) Android products, yet the two hottest mobile stocks in recent months have been laggards RIM and Nokia (NYSE:NOK).
Nokia's stock has also nearly tripled since bottoming out this summer.
Nokia has also delivered three consecutive quarterly deficits, and revenue is going the wrong way. However, the company's partnership with Microsoft (NASDAQ:MSFT), which will generate billions for Nokia by supporting Windows Phone through its Lumia line of smartphones, is winning over investors that don't see the fading feature phone king as a value trap.
RIM and Nokia haven't merely gotten dead-cat bounces. These stocks have nearly tripled, and that may stick around until either stock's helium-filled rally gets pierced by a pin.
RIM's pop may come next week.
This wouldn't be the first time that the old "buy on the rumor, sell on the news" adage rears its party-crashing face.
Expectations have grown too high for BB 10, and perhaps unsustainably so. Microsoft's Windows Phone 8 had plenty of buzz ahead of October's launch. Yes, Nokia sold 4.4 million Lumia phones during the holiday quarter, but Apple and Android claimed tens of millions of smartphones championing their mobile operating systems during the same three months.
Why should RIM fare any better?
IT departments still largely favor BlackBerry's secure platform, but employees crave the open-ended ecosystems of apps in the iOS and Android camps. More corporations are allowing employees to use iPhones for work use, and government agencies like the National Transportation Safety Board and the General Services Administration are ditching RIM, too. Developers aren't in a hurry to support BB 10, at least until RIM proves that it can grow its subscriber base again.
Cold feet after a hot stock price
Even the more bullish analysts on RIM are only cautiously optimistic.
Goldman Sachs analyst Simona Jankowski turned heads two months ago, raising her price target from $9 to $16. However, even Jankowski put the chances of BB 10 succeeding at a mere 30%.
It's merely a coincidence that Nokia and RIM have ascended as Apple has fallen since peaking in September.
Apple isn't teetering because of Windows Phone 8 or BlackBerry 10 fears. Apple is tumbling because Android is eating its lunch.
Shares of RIM soared 13% yesterday on interview comments by its CEO considering the possibility of licensing its mobile operating system or selling its hardware operations. Licensing won't matter. It will still be cheaper for handset manufacturers to go with Google's open-source solution, and that's where the app support is anyway.
The day that RIM longs have been waiting for is now exactly a week away. Is there any chance that the company's presentation can live up to the hype of a stock that has nearly tripled in a span of just four months?
It's dangerous to short RIM, but right now it's just as dangerous to own it.