Is Research In Motion Ltd (BBRY) Still Undervalued?

BlackBerry’s valuation

The main issue that many analysts put as an advantage for holding BlackBerry’s stock is that the company’s market value of $7.6 billion is basically BlackBerry’s current assets, which stand on $7.1 billion. Further, the current value doesn’t take into account any potential growth the company may have in the coming months. Therefore, the risk of holding this company’s stock at its current rate is low.

Considering the company has no debt, its equity in the balance sheet is nearly $9.5 billion, and its recent rise in sales, there is a grain of truth to this assessment. Moreover, Research In Motion Ltd (NASDAQ:BBRY) is in a better position than other struggling companies such as Nokia, which has a debt-to-equity ratio of 0.7. But I don’t think these facts are enough to persuade us to buy shares of BlackBerry.

Let’s start by saying that buying a company for its assets at market price isn’t much of a bargain. Second, BlackBerry may start losing money as it did last year. This will cut down on the company’s assets, which will bring its value down. Third, some of the company’s current assets, such as inventory, may diminish in value over time. The main selling point shouldn’t be the company’s low value but its potential recovery and its performance compared to other companies in its industry. After all, if the company won’t be able to turn it around, then its value will continue to dwindle.

Based on the above, we see that the company is showing signs of recovery and is likely to augment its sales. But since the company’s market share continues to dwindle, this suggests its growth is below the market average.

The foolish bottom line

I think Research In Motion Ltd (NASDAQ:BBRY) is on its road to recovery and is likely to keep seeing a rise in its stock. Moreover, the current market price might be still undervalued; perhaps after the publication of the quarterly reports this will change. But at the same time, BlackBerry’s potential growth over time is still questionable and until it starts to increase its market share, BlackBerry’s value will remain not much higher than its current price.

The article Is BlackBerry Still Undervalued? originally appeared on Fool.com and is written by Lior Cohen.

Lior Cohen has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Lior is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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