Is it possible not to love Research In Motion? Not lately, it seems. The handheld device maker’s shares have been on a rocket ride to the moon since May, when they bottomed out at about the $35 level. The stock is now trading in the $190 range, having risen by almost 450 per cent in less than five months. The shares are still short of their record high of $260 set in March, but they’re getting closer every day (chart).
RIM now has a market value of about $14.5-billion – more than Canadian Pacific, more than Petro-Canada, more than twice as much as TransCanada PipeLines and just slightly less than Imperial Oil and the Canadian Imperial Bank of Commerce. At $9.5-billion (U.S.), it is larger than Kellogg Co., forestry firm Weyerhauser, Starbucks and Occidental Petroleum, and is worth about $2-billion more than investment bank Lehman Brothers.
The company’s stock-market success has made at least one of its founders a billionaire: CEO Mike Lazaridis said Monday that he will donate $100-million (Canadian) to set up a Waterloo, Ont.-based research centre to study theoretical physics. RIM has taken advantage of its climb by issuing six million shares, which could raise more than $1-billion, although the company didn’t say what it planned to do with the money.
RIM will need a good portion of that cash to fight for market share with the other two major handheld players – Palm Inc. and Palm-clone maker Handspring, which recently went public. Both companies are larger than RIM: Palm, the company that arguably invented the current handheld market, has a market value of $34-billion (U.S.). Handspring, which was formed by the two developers of the original Palm and sells a Palm-compatible device called the Visor, has a market value of about $11.5-billion.
Fans of RIM’s products, which include a small pager-like device and a larger Palm-sized one, say they are better than either the Palm or the Visor because they are “always on” – that is, they are connected at all times to a pager-style network that allows a user to send and receive e-mail wirelessly at any time. The Visor, however, can be used in a similar way, thanks to plug-in modules that attach Game Boy-style.
Analysts say RIM is in a good position to form alliances with mobile phone giants, particularly in Europe, where next-generation wireless networks are more advanced – there have even been rumours that a cell phone maker such as Nokia might buy RIM. Others, however, say cell-phone companies are more likely to want to licence products rather than buy companies, and Palm is already working with several companies. Handspring, meanwhile, recently introduced a plug-in that makes the Visor a cell phone.
It’s true that RIM has a devoted following, particularly among Wall Street stockbrokers and traders, and there are some who maintain that it can not only compete with Palm and Handspring but perhaps even eclipse them in the handheld market, and make its software and/or hardware a new standard for handheld wireless data. But at its current level, it’s worth asking how much of that optimism is already priced into the stock.
First Call/Thomson Financial has analysts looking for $180-million (U.S.) in revenue for RIM next year, which makes the current price of $125 a multiple of about 54 times sales per share. Handspring is selling for 29 times its projected sales per share for 2001, while market leader Palm is trading at about 17 times its sales – which are expected to hit $2-billion next year. RIM and Handspring are both expected to lose money in the current fiscal year, while Palm is expected to make a profit of 13 cents a share.
By way of comparison, Nortel Networks – which some analysts have criticized for being overvalued – is trading for about five times its projected sales per share for 2001. Cisco Systems, one of the leading makers of computer networking equipment and another stock that is regularly criticized for being overvalued, is trading for about 20 times its sales per share, and software giant Microsoft sells for 15 times its revenues.
If Nortel is trading so high that it is “priced for perfection,” as some analysts have put it, what does that say about RIM? As one stock watcher at the Motley Fool investment Web site put it, the company had “better not make a single mistake, or it’s toast.”