Published: June 23, 2008

Research in Motion (Nasdaq: RIMM, $144.56) is the company behind the immensely popular BlackBerry smartphone and other wireless communications devices.

Whether it's corporate IT managers or everyday consumers, people are increasingly turning to feature-rich smartphones for music, email, GPS and other functions. According to Morningstar, this is the fastest-growing segment of the mobile phone market -- expanding at a red-hot +60% clip last year. And Research in Motion has a commanding 40% share of the North American market.

To understand how fast the company is growing, look no further than its 2008 annual report. Over the past 12 months, management has added over 80 new carrier partners to its vast retail distribution platform, including key allies in China and India, bringing the total up to 350. And those partners have been busy: despite the emergence of Apple's (Nasdaq: AAPL) iPhone, year-over-year BlackBerry unit shipments spiked +115%.

Starting virtually from scratch in 2000, the BlackBerry subscriber base has grown by leaps and bounds, reaching 8.4 million in 2007 and then swelling to 14 million at the end of fiscal 2008 -- and foreign consumers now account for one-third of that total. With operations spanning 135 countries, Research in Motion has enjoyed torrid revenue growth of +98% over the past year, and earnings have skyrocketed +104% to $1.29 billion.

However, while most are well aware of the firm's exceptional growth rates, few realize that margins have been marching steadily higher as well. In fact, operating margins improved from 2.5% in 2005 to 20.3% in 2006 to 26.6% in 2007. And as of last quarter, that all-important figure stood at 28.8%. By comparison, rival Nokia (NYSE: NOK) only manages to generate about half as much operating income per dollar of sales, with a margin of around 14%.

Much of the credit for the recent improvement goes to management, which has done a commendable job of leveraging its investments in research and development (R&D). Over the past year, those expenditures have dropped from 7.8% of sales to just 6.0%. Meanwhile, selling, general and administrative (SG&A) expenses are also being spread over a larger revenue base, dropping from 17.7% to 14.7% of sales -- a reduction of 300 basis points.

Over the next five years, shareholders can expect to see substantial bottom-line improvement on the order of +34.2% annually -- making the stock's forward earnings multiple of 27 much more palatable. Other attributes, including strong brand-name recognition and unheard-of returns on equity exceeding 40%, only add to the appeal. All this has paid off handsomely for shareholders as the company has surged +154% in the past year alone.

Nathan Slaughter
Editor
Half-Priced Stocks

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About Nathan Slaughter

Nathan Slaughter has developed a long and successful track record over the years by investing primarily in deeply discounted securities. He uses advanced discounted cash flow techniques, along with a host of fundamental research, to uncover quality stocks that are trading well below their actual intrinsic value.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors, where he provided comprehensive investment advisory services to small businesses and high net-worth clients. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print publications, and he now writes exclusively for StreetAuthority.com.

Nathan's educational background includes NASD series 6, 7, 63, & 65 certifications, as well as a degree in Finance/Investment Management. He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley. 

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