A stock with a depressed price that seems cheap on the surface, despite deteriorating underlying fundamentals, is the very definition of a value trap. Investors can be easily lured into these stocks, thinking that a low stock price in isolation is akin to a cheap stock.
That’s exactly what is going on with Research In Motion Ltd (NASDAQ:BBRY), a stock that had amazingly risen over the past several months despite little good news regarding its actual business. Investors were reminded of how painful it can be to catch a falling knife when the company’s first-quarter results landed on the market with a thud. Should investors finally leave this stock by the wayside? Or is there a reason for optimism?
Business conditions worsening
Research In Motion Ltd (NASDAQ:BBRY) reported a surprise loss, defying Wall Street expectations, serving once again to remind investors how foolish it is to rely on sell-side analysts.
In total, Research In Motion Ltd (NASDAQ:BBRY) lost $0.16 per share in the quarter, far better than the $0.99 per-share loss in the same quarter one year ago. However, analysts expected the smart phone maker to turn a profit of $0.05 per share.
Moreover, the company’s outlook left a lot to be desired. Management is expecting an operating loss in the second quarter. The company’s CEO, Thorsten Heins, attributed this to the ‘highly competitive smartphone market’.
Shares reacted extremely poorly on the news, falling as much as 30% intra-day.
Reason for optimism?
On the bright side, Research In Motion Ltd (NASDAQ:BBRY)’s total revenue grew 9% in the quarter, year over year. Pronounced strength was seen in North America and Asia-Pacific, where revenues spiked 30% and 35%, respectively.
Moreover, the company shipped 6.8 million smartphones, up 13% sequentially.
However, it’s important to remember these results included the benefits of the much-hyped BlackBerry 10 operating system. Clearly, the new operating system has not had the desired impact.
Furthermore, the company announced it would stop developing new versions of its poorly selling Playbook tablet.
Much better alternatives
Quite simply, investors shouldn’t allocate money to a device maker that isn’t selling many devices. Consumer preferences are clearly elsewhere, namely, Google Inc (NASDAQ:GOOG) and Apple Inc. (NASDAQ:AAPL), who own the bulk of market share in mobile devices.
There’s no comparing Research In Motion Ltd (NASDAQ:BBRY)’s operating results to those from Google and Apple in recent months. In its most recent fiscal year, Google Inc (NASDAQ:GOOG) grew revenue and diluted EPS by 32% and 9%, respectively.