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A person poses while using a Blackberry Bold 2 smartphone made by Research in Motion (RIM), July 13, 2010. The company will hold its annual general meeting of shareholders today. REUTERS/Mark Blinch (CANADA - Tags: SCI TECH BUSINESS) (MARK BLINCH/MARK BLINCH/REUTERS)
A person poses while using a Blackberry Bold 2 smartphone made by Research in Motion (RIM), July 13, 2010. The company will hold its annual general meeting of shareholders today. REUTERS/Mark Blinch (CANADA - Tags: SCI TECH BUSINESS) (MARK BLINCH/MARK BLINCH/REUTERS)

RIM can't buy a break Add to ...

When a company reports record-high earnings that top expectations, you might expect a pop in the share price. Not when the company in question is Research In Motion Ltd., though.

The Canadian company has delivered consistently impressive financial results, as more and more consumers snap up its BlackBerry smart phones - and its fourth-quarter numbers, released on Thursday evening, were no exception. Yet, RIM can't get a break.

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The shares were pummelled on Friday, falling 10.7 per cent and bringing their decline over the past 12 months to about 26 per cent. Deutsche Bank analysts downgraded their recommendation on the stock to a "sell," bringing the total number of analyst "sell" recommendations to nine, which is unusually large.

However, RIM could be a fantastic holding for long-term investors who don't mind the short-term consequences - which include being mocked by peers and haunted by visions of Apple Inc.'s Steve Jobs ruling the world. And yes, the bullish argument for the stock goes beyond the trite observation that the shares have been beaten up.

But let's step back a moment and review the bearish argument, which investors believe is so compelling that just about everyone has piled into it, creating a kind of anti-bubble.

RIM's share of the global smart-phone market has indeed taken a hit from rising competition from Apple's iPhone and Android-based phones. According to International Data Corp., RIM controlled less than 15 per cent of the market in the fourth quarter, down from nearly 20 per cent in the fourth quarter of 2009 - a substantial setback.

Additionally, some observers worry that RIM's traditional grip on the business market is tenuous, given reports that some companies - including JPMorgan Chase & Co. and UBS AG - are considering allowing employees to use iPhones rather than BlackBerrys.

"RIM has been for 10 years a premium brand, supported by a fundamentally differentiated product: the only mobile phone offering proper e-mail," said Pierre Ferragu, an analyst at Bernstein Research, in a note. "This time is now over; mobile e-mail has become a commodity, offered at no extra cost on any smart-phone platform."

With expectations this low, you would think that RIM was on a slippery slope to Nokia-land. Nokia Corp. was once a cellphone darling with a dominant market share. Rising competition and deteriorating earnings, though, have sent its share price sliding 80 per cent since 2007.

Investors, it seems, are easily intimidated: RIM's share price reflects the bearish case despite overwhelming evidence that the company is thriving. In its most recent quarter, it shipped 14.9 million BlackBerrys, which helped generate $934-million (U.S.) in earnings, up more than 30 per cent from last year - and that's with full-on competition from iPhones and Android-based devices.

Despite rising earnings, the stock trades at just eight times estimated earnings. That is a valuation reserved for companies like Ford Motor Co., whose annual sales have fallen about 25 per cent over the past eight years. Meanwhile, RIM has no long-term debt.

But RIM is much more than just a cheap stock. The market simply isn't giving it any credit for its upcoming PlayBook tablet computer.

Apple was first out of the gate with its iPad tablet, giving it close to 100-per-cent market share. But that share is about to fall, and fall hard, because Apple's grip on the tablet computer market isn't nearly as strong as its grip on, say, digital music players.

Investors seem okay with that, with Apple's near-record high share price signalling that falling market share doesn't necessarily mean disaster for Apple's growth. Uh, hello double standard.

RIM's PlayBook is not in the hands of consumers until April 19. But with the company's vast experience in producing attractive mobile communications devices, along with its powerful brand name, it isn't a stretch to bet that they'll sell more than a few of the devices. They could easily be a hit.

Many investors might be waiting to see how the PlayBook is received before stepping up with buy orders for RIM shares. Early investors will be taking a bigger risk, but the rewards are likely to be much greater.

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