TSC Ratings' Updates: Research In Motion

The following ratings changes were generated on Monday, Dec. 29.

We've downgraded Research In Motion (RIMM Quote), which engages in the design, manufacture and marketing of wireless solutions for the mobile communications market worldwide, from buy to hold. The primary factors that have impacted our rating are mixed. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures and notable return on equity. However, as a counter to these strengths, we find that the stock has had a generally disappointing performance in the past year.

Research In Motion's very impressive revenue growth greatly exceeded the industry average of 17.6%. Since the same quarter one year prior, revenues leaped by 66.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.

RIMM's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. To add to this, RIMM has a quick ratio of 1.63, which demonstrates the ability of the company to cover short-term liquidity needs.

45.60% is the gross profit margin for Research In Motion which we consider to be strong. Regardless of Research In Motion's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, the net profit margin of 14.20% trails the industry average.

Research In Motion's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 65.66%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Turning toward the future, the fact that the stock has come down in price over the past year should not necessarily be interpreted as a negative; it could be one of the factors that may help make the stock attractive down the road. Right now, however, we believe that it is too soon to buy.