For a prominent company that’s frequently in the news, Research In Motion Ltd (NASDAQ:BBRY) is one of the most misunderstood stocks in the market today. Too much attention focuses on the company’s past missteps — which allowed Apple Inc. (NASDAQ:AAPL) and Google Inc (NASDAQ:GOOG) to rapidly overtake it — rather than BlackBerry’s future prospects. Similarly, now that the new BB10 OS has come to market, too many people are focusing on the success or failure of the Z10 (Research In Motion Ltd (NASDAQ:BBRY) In Motion’s first BB10 device) rather than the ecosystem’s overall potential.
To be “successful,” the Z10 would need to sell perhaps 2 million units per quarter — just a tiny fraction of Apple Inc. (NASDAQ:AAPL)’s iPhone sales or Samsung Electronics Co., Ltd. (KRX:005930)‘s Galaxy S series sales. However, even that level of sales is not necessary to justify a higher valuation for BlackBerry, because the Z10 is just a small part of Research In Motion’s future. The much more important Q10 smartphone — equipped with BlackBerry’s signature QWERTY keyboard — is just hitting the market now. Furthermore, Research In Motion CEO Thorsten Heins has already revealed that lower-cost BB10 smartphones will come to market later this year, probably in the fall. Extremely low market expectations and a strong product roadmap will most likely combine to generate strong returns for Research In Motion investors.
Cheap stock
The investment case for Research In Motion is straightforward. First — and most obviously — the stock trades for $15, which is below book value. In other words, the company is priced to never earn a profit in the future and eventually go bankrupt. This is a big change from 2011, when the stock peaked above $70, or 2008, when Research In Motion shares briefly traded for more than $140:
BlackBerry 10-Year Price Chart; data by YCharts
To put it another way, for the past year, investors have been able to buy BlackBerry stock at prices that had not been seen since the company was a small start-up.
Great product
Second, Research In Motion has a competitive product again. The BB10 operating system is great for multitasking and includes several unique features that may appeal to current iPhone or Android users. Many people already claim that iOS is getting stale and that Apple Inc. (NASDAQ:AAPL) has lost its touch for innovation since Steve Jobs passed away. More recently, Samsung’s Galaxy S4 has underwhelmed many reviewers, who see it as a great phone, but not a big improvement over the SIII.
In all likelihood, most iPhone users will stay within the iOS ecosystem, and most Android users will stay within Android going forward. But consumer desires for something “fresh” could drive a significant number of people to Research In Motion over the next couple of years. This may get BlackBerry to only 10% market share, but the smartphone market has grown tremendously since the original BlackBerry went out of fashion. Today, having 10% market share would involve having Research In Motion sell more phones than it did at the peak of its popularity.
Loyal user base
Lastly, Research In Motion has an extremely loyal high-end user base of 20 million to 30 million (as well as a larger group of less-profitable subscribers with low-end phones). These users will almost all upgrade this year, and most of them will continue to prefer QWERTY phones. (To put it another way, why would anybody in the U.S. still be using a BlackBerry today, unless they’ve been waiting to upgrade to the Q10?) This fact seems underappreciated among Wall Street analysts, and strong sales of the Q10 in the next few quarters will probably surprise most analysts and investors, driving the stock higher.
Risky, but not too risky
Like most technology stocks, Research In Motion is a fairly risky investment. Changing consumer tastes, high competition, software glitches, and the like all have the potential to negate BlackBerry’s potential. That said, BlackBerry trades for less than book value, and the company is likely to be profitable this year because of high upgrade demand from existing users. These factors mitigate much of the risk in owning Research In Motion today.
Of course, it is possible that iPhone and Android users are already so locked in to their ecosystems that they won’t consider switching even if they do get frustrated with their phones. It’s also possible that Microsoft Corporation (NASDAQ:MSFT) and its partners will soon figure out how to build and market a Windows phone successfully, and thereby grab the third spot in the smartphone world. Nevertheless, BlackBerry has a small but loyal user base to build on, an innovative new OS, and a massive addressable market. This should be more than enough to make current shareholders very happy.
The article BlackBerry Is Still Underrated on Wall Street originally appeared on Fool.com is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg owns shares of Apple and BlackBerry and also has long January 2014 $13 calls on BlackBerry. The Motley Fool recommends Apple and Google and owns shares of Apple, Google, and Microsoft.
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