Waiting

I hate waiting.

If I know I'm going to be waiting for something or someone then I try to make sure I have a paperback, although these days I really make sure I have my iPod Touch.  If I'm somewhere with WiFi then I can surf the latest news, and if I'm somewhere without WiFi then I can listen to one of the many audio programs I have saved, or even read a little bit of classic (and therefore free) literature on my Kindle app.

Waiting for one of my stocks to go up in value to the point at which I am ready to sell it, though, isn't like waiting in a waiting room or waiting to meet my wife at a restaurant or waiting for a bus.  It's like waiting at a dance for someone to ask onto the floor.  It's an alert, vigilant, opportunistic waiting.  It's watching and waiting.  It's waiting to spring into action, should action be appropriate.

I wonder if it's like hunting?  Maybe it is.  I'm tempted to run with a Hunting metaphor for a while.  The rush of Success and its attendant Bounty.  The gut-wrenching Emptiness of Failure and the attendant knowledge that one's  future is Uncertain . . . .  That's if one is hunting for one's food, of course.

Maybe it's like fishing.  Or maybe it's like a stakeout.  Any of these metaphors would be more useful to me  if I was a hunter, or a fisherman, or a detective . . . .

The point is:  I hate this vigilant waiting, but it's what I'm doing right now.

While I'm waiting, I'm researching.  I'm looking for undervalued stocks that I'm certain will be better valued in the future.  Two weeks ago, just beginning to wait, I cast my gaze upon Research In Motion (hereafter often referred to by its ticker-symbol of RIMM) and it became the subject of that week's column.  At the time I intended to write about my decision-making process regarding RIMM in even more depth, but my self-imposed deadline arrived and I'd already written everything that really mattered.  I contented myself with the promise that I would write more about RIMM, soon.

Soon is now, and now I want to draw my readers' attention to the Book Value of RIMM.

Here's a screen-grab from Yahoo's Key Statistics page for RIMM.  I've circled in RED the item I want to draw your attention to:  The Price per Book.

The Price per Book is literally the price of a share of the stock divided by the book value of a share of stock.  If you go directly to the Key Statistics page you can see that the book value of a share of RIMM is $19.77.  It's near the bottom of the page, so I can't do a screen-grab that shows the book value and also still says Research In Motion, but that's okay, the Price per Book is what I want to expound upon, anyway.

Still, before we get into some simple math, it's important that we understand the book value per share.  It's like the Blue Book value of a car.  Someone somewhere (either an analyst at a company called Capital IQ, or an analyst in the finance department of RIMM, or both) has done some calculations on all the assets of RIMM and come up with a dollar-amount of what it's worth - the book value.  Divide the book value by the number of shares outstanding in the stock and you get the book value per share.

Okay, so how does Yahoo's Key Statistics page calculate the Price per Book?

The price of the stock, in nice bold numbers at the top of the screen-grab, is $15.07.  Grab your calculator and divide $15.07 by 19.77 and you get . . . something that is not quite 0.78.  I'm coming up with 0.762.  What is up with that?

Here's what's up:  Yahoo's Key Statistics page is not burdened with the task of updating the Price per Book every second of every trading day as the price changes.  Instead it takes the price as of the beginning of the most recent trading day and uses that in its calculations.  This means that even though I'm writing this on President's Day and the markets have been closed for three bloody days, Yahoo is using RIMM's opening  price of $15.39 on Friday the 17th in order to calculate the Price per Book.

Divide $15.39 by 19.77 and you get 0.778.  That's more like it.

The point, though, is that as of this writing the Price of a share of RIMM is less than the Book value of a share of RIMM, meaning the Price per Book is less than 1.

Why do I care?  Because there's not a much better indicator out there that a stock is under-valued then the fact that it's trading for less than it's book value, and I'm looking for under-valued stocks.  It's like looking for houses that are selling for less than they were appraised for - not too difficult to find just now.  Or maybe it's like looking for cars that are priced under their Blue Book value.

Of course, if a car is priced significantly under its Blue Book value then the first thing a potential buyer should ask is "What's wrong with it?"

In a previous column I covered what's wrong with it.  The company's market share has tanked, and until the Blackberry becomes a serious competitor in the SmartPhone market then it's not going to get any better.

That said, the Blackberry does have its niche in the communications ecosystem.  It may never grow beyond its niche, but if it does at least hold onto the niche it has then the price of Research In Motion stock should come back up to book value one of these days.  It's not like RIMM isn't making money.  Look at the Key Statistics page again.  RIMM makes billions of dollars in Net Income each year, and is currently debt-free.

It looks like a great buy.  I want to know more.  Specifically, I want to know how the book value has been fluctuating over time.  Has the book value been declining along with the price?

Fortunately, there's a site that can tell us what the book value of RIMM has been over time: ycharts.com.  It's a site that I find occasionally handy.  It offers all kinds of convenient graphs of historical data for a given stock.  Some if it, like Operating Margin, you have to be a paying subscriber to ycharts in order to view.  Some of it - like book value - you can look at for free.  Have a look at this:

This is a graph of Research in Motion's book value per share over the last 10 years.  I'm not sure why ycharts doesn't have data for May of 2008, but because it doesn't there's a gap for a couple of quarters.

We can see from this graph, though, that RIMM has been consistently growing in book value per share.  This speaks well of the company's management team, or former management team, anyway.  The management at RIMM has recently gone through a major shake-up.  Of course, it seems that investors weren't thrilled with the old management.  Investors are evidently more concerned about the price than about the value.

It's possible that the new CEO is just what Research In Motion needs, but for now he's unproven in that role. He'd been COO for some time, though, prior to becoming CEO.

For now, the upshot is that nothing has changed for me.  I'm still vigilantly watching the stocks I own to see when I'm ready to sell, and I'm still looking for stocks that I'm convinced I want to buy.  I'm not convinced that Research In Motion is a great buy, but I'm also not convinced that it's not.  I'll be watching it.  And I'll be waiting.

UPDATE:  After some consideration I have clarified my thoughts on under-valued stocks.  Please see this more recent post for further ruminations on price per book.