Many thought that Research in Motion (NASDAQ:RIMM) couldn’t go lower, what with strong competition and weak buying pressure. Unfortunately Research in Motion proved the speculators wrong after announcing that its sales plunged 43% in the first quarter and that it has been forced to cut 5,000 jobs, or about 30% of its workforce. But then again, it wasn’t too long ago that Research in Motion Ltd. was considered a leading player in the mobile market, so could this merely be the bottom before the company roars back to life? Let’s find out.
Company Overview
Based in Ontario, Research in Motion has been in the telecommunications business since 1984. In the early 2000s, the company enjoyed a meteoric rise in popularity as its line of BlackBerry smartphones gained more traction; at its peak, the company managed to grow profits by 84% over three years despite the recession.
Research in Motion also managed to nearly double sales for each of the years between 2003-3009. However, the company’s top- and bottom-lines have been slowing down since then; the company brought in just under $18.5 billion in 2012. After Research in Motion completes its latest round of layoffs, it will have a global staff of 11,500.
Competition Buzz
There’s no double that Apple (NASDAQ:AAPL). and Google (NASDAQ:GOOG) are trouncing Research in Motion on the smartphone front; while 7.8 million BlackBerry phones were shipped in the first quarter, Apple managed to sell over 35 million iPhones last quarter. In total, Blackberry only manages to account for 7% of the global smartphone market.
So when you plug in RIMM, AAPL and GOOG into my Portfolio Grader tool, the difference is clear. Apple does the best in terms of fundamentals; this company receives nothing lower than a B-rating for each of its fundamentals.
Meanwhile, Google does well in terms of most fundamentals but could stand to improve its track record of beating analyst earnings estimates as well as its operating margin growth. When it comes to Research in Motion, however, this company’s fundamentals are downright terrible. AAPL is an A-rated stock an GOOG is a B-rated stock.
Earnings Rundown
Research in Motion posted abysmal operating results after the closing bell last Thursday. Compared with Q1 2011, the company’s sales plummeted 43% to $2.8 billion; this missed the $3.11 billion consensus estimate by 10%. The company also posted an adjusted net loss of $192 million, or a loss of 37 cents per share. This came in far below analyst estimates of a loss of 1 cent per share.
But that’s not even the worst part: looking ahead management expects that conditions will be so challenging that the company will report an operating loss next quarter. There are rumors that Research in motion may need to look for a buyer if its financials don’t firm up fast.
Current Ratings
Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. The past year has not been good to this stock; over the past 12 months, RIMM has failed to break out of sell territory. This is due to a combination of rock-bottom buying pressure and abysmal fundamentals.
In fact, the only areas that Research in Motion excels at are its cash flow and its return on equity. All other fundamental metrics, including sales growth, earnings growth and operating margin growth, are D- or F-rated. This company just hasn’t been able to firm up its fundamentals due to the competitive mobile phone market, and it doesn’t look like Research in Motion will be able to recover anytime soon. RIMM receives a D for its Fundamental Grade and an F for its Quantitative Grade.
Bottom Line: As of this posting, July 2, I consider RIMM an F-rated sell. If you currently hold shares of RIMM, I strongly recommend that you find a good time to part ways with this stock.
Recommendation: F-rated Sell
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