Research in Motion (RIMM) has plummeted almost 10% today after a Pacific Crest analyst said retail sales for the current quarter have been “slightly disappointing.” On top of the wholesale smashing RIM has taken over the past several months, this latest blow has pounded the stock down to a level where it’s finally getting interesting.
At $52, RIMM trades at about 18X trailing earnings. Given the growing competition in the sector–Apple iPhone, Google G1–a 15X-20X multiple makes a lot more sense than the 40X the stock traded for quite recently. RIM’s margins are likely to continue to contract as the company moves deeper into the consumer market, but this is not a company that is likely to suddenly plunge into the red or give up and slink away.
Research in Motion has built a leading position in this market because its devices are excellent and its combo hardware, software, and service solution provides one of the best experiences available in the industry. Even if the company’s operating margin got cut in half, which it probably won’t, the potential earnings growth from that level should still be compelling. Then there are the new devices, like the Bold, which should eventually help drive some more excitement.
Eventually, we expect RIM to be bought. Nokia, Apple, Microsoft, Google, HP, Dell, and Cisco are all potential acquirers. Hopefully the company will have the good sense to sell when things are going well, intead of waiting until they implode, like Motorola and Palm.
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