Why RIM should forget being a tech stock and pay a dividend

Following my previous article comparing recent financial results between Nokia and HTC
it would be useful to take a look at those of Research In Motion (RIM), the maker of the Blackberry, and whose share price has fallen 50% since their annual results were announced in February.  In fact RIM’s share price is at a 4 year low point with press scepticism regarding their product roadmap and delays in introducing new products.

RIM’s 2011 annual report shows the following key data

Net Sales  $19,907m

Gross Margin  $8,825m

Operating Profit  $4,636m

And here are some ratios with the numbers for Nokia and HTC shown for comparison.

Operating Profit Margin

RIM 23%

(Nokia 11.3%     HTC 15.5%)

Gross Profit Margin

RIM 44.3%

(Nokia 30%     HTC 30%)

Return on capital employed

RIM 50.2%

(Nokia 10.5%     HTC 59%)

Return on Shareholders fund

Rim 38.1%

(Nokia 8.6%     HTC 56%)

Sales Revenue to capital employed

RIM 2.15

(Nokia 2.15     HTC 3.73)

Sales Revenue per Employee

RIM $1.17m

(Nokia $429k     HTC $1.33m)

Price per earnings (17th June)

RIM 5.56

Nokia 8.32

HTC 16.58

Analysis

RIM’s ratios are significantly healthier than Nokia’s, and better in some cases than HTC. Yet they have the lowest price per earnings. I think this is a good example of how the stock market looks considerably forward in their valuation mentality. RIM is making good margins and return on investment, yet their share price is heavily discounted. The markets clearly don’t see a positive future based on RIM’s product line and the mobile phone competitive landscape RIM finds itself in. Even more bleaker than Nokia it seems.

I think there is also a strong North American bias here. RIM’s international sales doubled in 2010 whereas in North America their platform is viewed by some as having peaked and being under threat from Apple and Android devices.

RIM hasn’t paid a dividend in 3 years. So with earnings per share of over $6 and a share price of $26 at time of writing maybe it is time to change this policy and boost the share price this way.

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