Are Further Gains in Store For RIM Shareholders?

The huge move that RIM’s stock has had over the past four months may not be over yet.

| More on:
The Motley Fool

Research in Motion (TSX:RIM,NASDAQ:RIMM) seems never to be far from the lips or ears of the Canadian investor.  It is not just a company we know, but a company that we tend to be emotional about.  In some respects, we might consider RIM to be the Toronto Maple Leafs of the Canadian stock market.  Like the Toronto Maple Leafs, RIM’s demise has been well documented.  However, the company’s shares have nearly tripled over the past four months.  This move has left many of us scratching our heads and wondering if the stock has further to run.

Nothing to add

You’d be small-f foolish to think that there might be some piece of existing fundamental information out there that is not currently being reflected in the price of this stock.  A mind-boggling 51 sell-side analysts follow RIM, spending much of their daily lives trying to figure out the company’s destiny.  Add on a growing world of blogosphere analysts, and you’ve got yourself one well-covered entity.  However, while poking around recently, I came across an interesting tidbit that could lead this stock to run much further than it already has, if the soon-to-be released Blackberry 10 gets a warm reception on Jan. 30.  Because of the extensive coverage that it receives, RIM has not really surprised me in years – but this information did.

The stat

The number of RIM shares that have been sold short speaks volumes.  Short selling is the act of selling shares that you don’t actually own, with the hope of buying them back at a lower price at some point in the future. When you short a stock, you’re betting that its price will drop.

I expected that RIM’s recent rise owed partly to short sellers that had been covering their positions – buying shares in hopes of limiting the financial loss that any further rise in the stock price might cause, and driving the price higher in the process.

Turns out that’s not even close to the truth.  RIM’s shares bottomed on Sept. 24 at C$6.31.  The outstanding short position was 87.5 million shares (about 17% of total shares outstanding).  As I write, RIM’s shares are at C$18.17 and the short position stands at 137 million shares (27% of total shares outstanding).  50 million more shares have been shorted since RIM’s rise began!

Here’s the chart to portray the trajectory of the share price and the outstanding shares sold short over the past year…..

RIM shorts outstanding

Source:  Capital IQ

Bold prediction

Based on this information, I suspect these short sellers WILL cover their outstanding positions by buying the stock … someday.

The shorts are betting that BB10 will be a huge flop, spelling the end of RIM. But if RIM is able to gain some traction with BB10, and demonstrate pent-up market demand for this product, the short sellers will likely get scared.  The demand that will be created by short sellers buying the stock to close their positions could lift RIM shares considerably higher.

The shorts have already endured significant pain. Those who sold shares at $7 would now have to buy them back at $18.  Indications of a successful BB10 launch could push them over the edge.

Back to the fence

Though I see a route to a higher RIM stock price, I’m not certain this scenario will bear fruit.  After an initial spark of interest, as those who hold older Blackberry models turn them over for the new edition, my opinion is that demand for the BB10 will dissipate.

RIM has lost too much market share. They likely won’t gain it back just by bringing to market a product that is very likely similar to existing smartphones.  This is longer-term thinking, though, and has little to do with the next few months that follow the upcoming product launch.  With even a whiff of success from BB10, RIM shares may have much more to gain.

Follow us on Twitter for the latest in Foolish investing.

Fool contributor Iain Butler does not own shares in any of the companies mentioned in this post at this time.  The Motley Fool has no positions in the stocks mentioned above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

Redwood trees stretch up to the sunlight.

2 Stocks With Surprising Growth Potential

Alimentation Couche-Tard and Restaurant Brands International are stealthy growth stocks that are trading too cheap right now.

Read more »

potted green plant grows up in arrow shape

2 Incredible Growth Stocks With a Bright Outlook for 2023

Constellation Software (TSX:CSU) stock and another tech titan that may be too cheap to ignore, as it looks to power…

Read more »

analyze data
Dividend Stocks

3 Top Dividend Stocks to Buy and Hold Forever

These three dividend stocks on the TSX today have offered substantial gains in the last year and could prove strong…

Read more »

analyze data
Dividend Stocks

3 Surprising Stocks Trading Lower in 2023

Some of the weakest performers of 2023 (so far) may be powerful additions to your portfolio in the right market…

Read more »

Golden crown on a red velvet background
Dividend Stocks

3 Surefire Dividend Aristocrats That Are No-Brainer Buys in 2023

Cash flow-rich companies such as Fortis and Canadian Utilities should be part of your dividend portfolio in March 2023.

Read more »

Airport and plane
Dividend Stocks

Down by 20%: Is Air Canada Stock a Buy After its Earnings?

Air Canada stock continues trading for a significant discount after its earnings release, but it still might not be a…

Read more »

grow money, wealth build
Tech Stocks

$10,000 Invested in These Growth Stocks Could Make You a Fortune Over the Next 10 Years

Growth stocks such as Dollarama and Chewy are well poised to deliver outsized gains to long-term investors.

Read more »

Two seniors float in a pool.
Stocks for Beginners

2 Smart Stocks to Buy in 2023 That Could Help You Retire Richer

When it comes to investing in smart stocks on the TSX today, these two are some of the best that…

Read more »