The Earnings Report, the Fantasy and the Reality

RIMM reported earnings yesterday after the close. The EPS and revenue were better than expected. The Q3 forecast is also better than expected. The stock rose after hours to a high of 50.43 on heavy volume. After the earnings call, the stock stock lost a bit of its new found luster and settled at 48.50.

Throughout the post report hours I felt that I should have taken a larger position on RIMM, and I began to fantasize on my Excell spreadsheet about the money I could have made if I invested my entire portfolio on RIMM. That's investing for you - when you lose you regret the loss, and when you win you regret the missed profits!

That's one aspect of investing I have to get better at. I need to control the emotions of a loss and the regrets of not investing more when it's profitable.

Now the question is, do I hold on to RIMM, buy more, or sell what I own for a profit? That is the second aspect of investing I also need to get better at. I need to control the emotions of loss and regret and learn to reevaluate the position as though I did not already have an investment on the stock. To that end I dedicate the rest of this blog.

The EPS for Q2 is 1.46, and the twelve month trailing PE is 9.2. It's incredible that RIMM is being treated with such disdain. After all, isn't it one of the leading companies in the cell phone industry? With a 12 month trailing PE of 9.2, investors are basically saying that RIMM is no longer a growth company. Is this plausible? Well, the revenue growth is slowing even though the profits are quite robust. Is the market fearing that the revenue growth will stall and RIMM will lose out to APPL just like NOK, MOT and all the other once high flying telecom companies?

If the price and the PE is a sign of investor sentiment, then yes. RIMM is done as a growth company. Could it be true? Perhaps, but I think I will take my chances with an ex-growth company selling at a PE of 10 than a growth company selling for a PE of 30. And in case I am wrong? Well, I'm not investing my entire portfolio on it, despite of what my fantasy might be. So do I hold, sell or buy? At this point, my emotions tell me to hold even though my analysis says buy. Unfortunately, I am already at 8% of my account so no matter what my emotions or analysis says, I can not buy any more, as no single position should be more than 10% of my account.