Ouch.. Research in Motion (RIM) released quarterly earnings after the closing bell on Thursday. After lowering profit forecasts seven weeks ago, the company fell short of lowered analyst expectations. To date RIM is down nearly 54%. Let's recap their earnings below and see whether or not a buying opportunity arose:
- Q1 revenue of $4.9Billion, compared with $4.24Billion in previous year's quarter
- Q1 profit fell 9.6% to $695Million or $1.33 per share, down from $769 Million and $1.38 per share in previous quarter
- Current fiscal year EPS estimates of $5.25-6.00 a share, lower from $7.50
- Shipped 13.2 Million Blackberries
- Lowered estimates for Q2 EPS to $.75-1.05
- Shipped 500,000 Playbooks, up from 336,000 expected
- Overseas revenue up 67%.
The numbers are brutal to say the least. The Playbook, though numbers exceeded analyst expectations, seemed rushed and unready for market. The number of Blackberries shipped was less than expected and only further showed the shrinking market share of smart phones RIM has. Management stated they would lay off employees, yet they continued to remain optimistic for the future.
Management also remained optimistic for 2012 when they move their current software to their new QNX system. It remains to be seen if the QNX will be successful and 2012 is quite a ways away to have anything more than a guesstimate when talking about its success.
As much as Wall Street has beaten down RIM and Blackberries, a bottom may be forming in the near future. There has been nearly seven weeks of the share sliding since management lowered forecasts and much of the slide was in anticipation of Thursday's earnings. Share have slid more than 20% today. Investors were aware of lower earnings and the shorts have been out in full force that past few weeks riding the stock down to where it is now. Now a buying opportunity has arose; let's take a look why.
Earnings where down across the board and the company is moving through a rough transition. However, the company looks severely undervalued at this point. The P/E is 4.4 and the company looks oversold with a three month RSI of 14. With sales of $4.9 Billion in Q1 and higher than average profit margins for the industry, to company still remains strong financially. Management has also stated that they will continue to buy back shares. The Playbook looks like a flop, but growth in overseas markets grew at a robust rate. The company still remains strong fundamentally and though they may never regain their past market share, they will remain a viable player in the industry.
The company no longer appears to be in the $60's anymore, but analysts expectations in the low $40's appear to be more than realistic. A buying opportunity has arose and the risk/reward appears to be more reward and less and less risk.