Research In Motion Limited (NASDAQ: RIMM) is running into some trouble. The issue is not whether it makes good phones or whether it is still growing. Rather, the company is losing some of its competitive edge asApple Inc. (NASDAQ: AAPL) continues to take market share with iPhone sales and Google Inc. (NASDAQ: GOOG) is taking more of the higher-end corporate market with its Droid phones.Last week, RIMM posted Q1 revenues that fell short of expectations even though its bottom line was not a miss. The company also issued weaker-than-expected sales growth and subscriber expectations compared to estimates.
In a thriving smartphone market, this means that Apple and Google are disrupting RIMM's business. The notion that Apple sold 1.7 million units of the newest iPhone in three days says it all. And Google's Droid phones are also getting accolades from more and more of the high-tech crowd.
Despite all this, Raymond James raised its rating to "outperform" from "market perform" this morning, but maintained its $70 target, a 32% increase from today's price.
After an 11% sell-off on Friday, the stock now sits at $53. It has lost 42% of its value from its 52-week high. The prior 52-week low was $54.30 before it closed at $52.23. The intraday low this morning came in at $51.69.
The old trading maxim is that stocks hitting new 52-week lows tend to keep putting in new lows.
There is no reason to make a long-term bet here. The RIMM July 52.50 Puts (RIMM 100717P00052500) cost $1.68, while the RIMM July 50 Puts (RIMM 100717P00050000) cost only 88 cents. The 50 strike seems to offer you more upside versus premium at risk.
You could also make a hedged short sale trade by selling short the RIMM shares at $53 and buying theRIMM July 55 Calls (RIMM 100717C00055000) at $1.13, which gives you an implied maximum downside out to July 16 of $3.13 per share. If RIMM tanks this week or next, then you could lock in your short-sale gains and still have some remaining value for selling your hedge.
RIMM is an old favorite. Its chances of hitting the same sort of skid row that Motorola, Inc. (NYSE:MOT) and Nokia Corporation (NYSE: NOK) have seen seem slim. But the stock's sudden recovery also seems slim.
One other issue to consider here is that its short interest seems to have compressed rather than grown into its earnings -- 16.9-plus million shares as of June 15 settlement versus 17.2 million shares short as of May 28. That means that any major short covering was very muted.As the saying goes, there is more one way to skin a cat. And if new 52-week lows beget more 52-week lows, there is definitely more than one way to skin RIMM.
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