So why go long RIMM of Blackberriy, Bold, Storm fame?
On the back of news that RIMM had raised revenue and profit guidance last night, I felt compelled to jump in on the long side for a trade. The market seemed somewhat unimpressed by the news after hours and in pre market trade, with the shares only slightly up and even for a while trading lower (possibly due to an analyst downgrade at cowen & co). Ignoring his comments and the longer term pressure on RIMM due to competition from Apples 3G iPhone, I decided that from a technical and fundamental perspective the reward was now very much with the long side and the risk would be living firmly with the bears.
In reference to the bearish view of RIMM, Matt Hoffman at Cowen, who downgraded the stock this morning, commented that “At 13 times our Street-low [fiscal 2010] EPS of $3.00, the multiple still looks too rich, given that margin erosion and our negative outlook on the sustainability of RIM’s competitive advantages.”. Since when did a company forecasting to grow its revenues at 70 to 80% trade at a P/E of 13? While i agree with their comments that RIMM may face some problems sustaining their competitive advantage, those issues may be overblown for the moment with the strong initial uptake of the Storm and Bold products. Indeed, according to an user research expert I’ve asked, the iPhones keyboard still leaves much to be desired when attempting to write an email.
Returning to the technical case for being long, the shares have finally managed to stop the series of lower lows that have been occuring for the last six months since the peak back in July and also have managed a new higher high. As well as this, the share price now has the company guidance issued yesterday to prop it up and removes some doubt and fear that have been dogging it for the last six months. It may even get the bulls dreaming of better than expected times ahead.
Although this is just a trade and i doubt RIM has bottomed in this economic cycle, the shares are priced attractively for the medium term and the momentum appears to be shifting the bulls way. I’m adding a Mental stop at breakeven around $39.80 and just below the support at $40.