RIMM - update

I decide to allocate a new post to my trade on RIMM rather than just adding a comment to the previous post.

RIMM reported its results on Thursday after market. Shares were up 5% pre-market but ended Friday with only 0.5% gain.

Analysts were mixed on their review; 28 analysts maintain buy, 14 are neutral and 10 recommend sell.

Personally, I believe RIMM is being under priced at the market. Its quarterly sales were up 31%, earnings jumped 76% over same period last year, new shipments hitting the high of 12.1 m units.

OPERATIONALLY, RIMM is on a roll. It is a well managed company.

The ONLY negative is the number of subscribers failed to meet their own guidance of 4.5 m .

RIMM added fire to the negativity by announcing that they will only announce new numbers only when new milestones are passed. Analysts do not like this kind of uncertainty.

Lets discuss more on the results:

The subscribers' is mainly US subscribers. RIMM added only 100,000 subscribers in N. America. However, international subscribers where the real growth will come, is expected to more than double within 2 years. 52% of RIMM sales come from outside US. I like this because it is my belief that growth of US company will come from outside N. America. I will buy stocks of company that has a significant sale outside America.

It was reported that Torch sales were lackluster and weak. But the results show that the sales of Torch shows otherwise. It shows that the ATT $100m advertisement campaign is working. Sales at ATT stores in US tripled after the Torch launched. There is plan to roll out the product to 75 carriers worldwide.

The graph above shows the correlation of earnings and price. There is a big disconnect. Current depressed share price is certainly due to much hyped sentiments of RIMM losing competitively to Apple and Android. The smart phone market is big enough to share. It is a matter of time that powerful operating results will overcome market irrationality. RIMM is currently trading at 8.5X PE compared to Apple 19 X PE. This is a gross mispricing of a well managed company in a competitive market.

In conclusion, RIMM is currently undervalued. Buying RIMM now is a good contrarian play but caution is needed.

My married put did not work out as expected although I made some money. It did not break out as bullishly as I wanted on Friday.

Actually, I add a Oct 42.5 SP at 0.7. At the close of the market, I am losing some money but this is protected by a Dec 42.5 P on the trade.

When market opens on Monday, if the stock goes down, I may just close the trade for some profit as sentiments are overwhelming bearish although fundamentally it is a value stock. I had a discussion in a chat and most people are bearish on this stock. I asked a couple of people holding RIMM phones, most of them agree they will switch to Android or Apple if allowed.

If the stock goes up, I will certainly atdd a SC at around 50 as short term sentiment is bad. Something must happen to change he sentiment in the market for this stock. It could be a winning new product, a buyout or an impressive report of growth overseas. For the time being, these positive news are vaguely or even non existent.