It might be smart to hold conflicting views on Research in Motion: Love the Blackberry, hate the stock.
Against a backdrop of weaker demand for wireless devices - look at recent results from Rogers Communications and BCE - analyst Neeraj Monga at Veritas Investment Research took a hard look at the prospects for RIM , and decided the company's past looks better than its future.
In a nutshell, the Veritas analyst sees RIM valuation falling, as the company moves into a world of increased competition for clients, lower profit margins, shorter product cycles and slower growth.
"Our bearish stance on the company is in direct opposition to the widely held belief that RIM's market position is unassailable, and that the current valuation validates the growth prospects embedded in its business model," said Mr. Monga in a report.
Looking ahead, the key to RIM's robust stock market valuation is building the same loyal mass market client base that Blackberry enjoys with business users. Mr. Monga argued that continued outperformance is unlikely. He compares RIM with Dell, which saw its stock price soar when it was the market leader in home PCs, only to come back to earth when low-cost competitors targeted its customers.
"RIM's attempt at using the cash flows from its enterprise business to build an entrenched position in the consumer marketplace has been well rewarded so far. Going forward, we do not believe that the company can maintain the same momentum," said Mr. Monga, who puts what he calls an "intrinsic value" of $44 (U.S.) on the stock.
"We believe that the 2010 guidance from the company on consolidated gross margins will disappoint investors," said the Veritas analyst. He said: "RIM's devices are dependable and robust, not its valuation."
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