Investors like Goldman Sachs' upgrade of Research In Motion Ltd. RIMM-Q on Wednesday morning. RIM shares gained 3.5 per cent in New York, bringing their total gains to more than 15 per cent since the shares touched a six-year low last week. But is there really that much to celebrate here?
The upgrade has been getting some publicity, given that it is relatively rare for an analyst these days to take a sunnier view of the BlackBerry maker, whose share price has slid 72 per cent since February -- and is down even more from its record high. However, the Goldman Sachs analyst merely upgraded the stock to "neutral" from "sell", which is hardly a table-pounding recommendation to load up on this stock.
The analyst, Simona Jankowski, also rejects the notion that the shares are cheap based on their extremely low price-to-earnings ratio of about 4, for the reason that she believes the P/E ratio doesn't have much meaning when earnings are declining rapidly. Instead, she prefers to take a sum of the parts approach to valuation, based on three factors: RIM's intellectual property, its cash flow from services and its cash. Using this approach, she figures RIM is worth about $9.6-billion (U.S.), which is roughly equal to its current value in the stock market.
The Goldman Sachs upgrade comes just one day after Northern Securities raised its recommendation on RIM to "speculative buy" from "sell" and also boosted its target price to $26 from $18. Perhaps investors sense that the upgrades -- though framed by caution -- are the start of something.
