RIM an undervalued bargain?
Shares up 42% in three weeks in response to improved analyst sentiment
Shares of Research in Motion (NASDAQ: RIMM) were up more than 5% in Monday afternoon trading after an analyst raised his price target for the BlackBerry maker.
Monday's gains put RIM over $30 a share (30.87, to be precise) for the first time in since late June, while continuing a ticker comeback that has seen shares climb 42% from a five-year low of 21.60 set on Aug. 8. (RIM closed Monday at 30.73, up 5.3%.)
Basically, RIM is benefiting from recent online investment chatter that perceives the company's shares as undervalued, as well as from generally positive reviews of its new BlackBerry OS 7 smartphones.
On Monday, Macquarie Research analyst Kevin Smithen raised his price target for RIM to $42 from $40. According to MarketWatch, Smithen wrote:
“We continue to view RIM’s ~70 million recurring revenue subscribers, strong international franchise, popular BBM service and its 11,000 patents and Nortel license as vastly undervalued and underappreciated by the Street.”
Granted, its BBM service alone ensures that RIM owns the crucial rioter demographic, but the company continues to face challenges that the introduction of some slick new handsets can't make go away.
For example, there's the fact that Google's Android OS has gutted RIM's market share over the past two years. And during that same time frame, Apple began infiltrating BlackBerry's stronghold in the corporate world, with first the iPhone and later the iPad tablet.
If RIM can't respond to either threat, sales will continue to be soft and market share will continue to slide. But based on the botched design and roll-out of the PlayBook tablet just a few months ago, it's hard to imagine this $16 billion company rising to the occasion against giants such as Google and Apple.
Value investors, by definition, tend to focus on financial metrics, often neglecting or glossing over the strategic considerations and market factors that determine a company's success. Doing so in the case of RIM is taking a real risk.