Is RIM’s Stock Worth Buying?
Research In Motion Limited (NASDAQ/RIMM; TSX/RIM) has been one of the worst-performing technology stocks in recent memory. As the mobile environment has continued to evolve, Research In Motion (RIM) has failed to keep up with other technology stocks that were developing new and innovative products. This is clear from the current market view, as represented by the huge decline in RIM’s stock price and the massive decline of its market share. While at one time RIM had over 40% market share in the smartphone segment, it’s currently in the low single digits—a huge decline in a short period of time.
Some investors are hoping that the current price level is a bottom for the share price. With other technology stocks in the sector soaring to new heights, namely Apple Inc. (NASDAQ/AAPL), everything for RIM rests on the view platform called “BB10.”
To start with, RIM once again disappointed the market earlier this year when it announced the delay in the release of its new operating system and hardware until early 2013. This is a very long delay for technology stocks in this fast-moving sector. This also resulted in a further negative market view, as shares did indeed sell off at the point.
However, there are now reports that the existing BlackBerry Enterprise Server (BES) infrastructure will not be compatible with the new BB10 software. Essentially, RIM is forcing all businesses to upgrade their hardware and software to the new BB10 platform. While technology stocks do need companies to upgrade in order to generate revenue, I’m not sure this heavy-handed approach is smart. The market view, as seen by the stock’s performance, certainly isn’t very confident in this strategy.
Companies transitioning to the new operating system will have to run both systems at the same time to manage their networks until they are fully integrated. I also think this move might actually push companies to abandon the BlackBerry platform for another; considering the continued level of disappointment over the years by RIM and increasing demands from employees for other mobile operating systems, this might be a final push. Companies might just say enough is enough and avoid upgrading to the new operating system.
Chart courtesy of www.StockCharts.com
While some technology stocks have had strong years, RIM is not one of them. Every move up hasn’t been met with heavy selling, as the market view continues to be negative. The only bright spot is a positive divergence by the Relative Strength Index (RSI) and moving average convergence divergence (MACD) indicator from the stock price.
I think this gives little comfort to long-term holders of this company. Another lesson: technology stocks that continue to innovate and increase market share should be on one’s buy list, while technology stocks that are continually disappointing the market and falling behind in product developments should be sold. It doesn’t take a genius to note that the market view is negative and will remain so until the company can prove it has a chance to turn things around.
While there is the possibility of a quick move up, the question is whether it will be sustained over the long term. As one can see in the chart above, there are significant headwinds of resistance for the stock on any move up. We won’t know for some time how effective this new operating system will be in penetrating the market. With other technology stocks moving so far ahead, it might be too little too late. With the market view so negative, it will take significant momentum to turn this ship around.