SAN FRANCISCO (CNN/Money) -
Next week Research in Motion investors will find the company's stock twice as nice when it splits before trading begins on June 7. Investors have been smitten with the firm for some time, and last week the stock reached 52-week highs on three straight days.
But is this Canadian maker of mobile e-mail devices and software really worth $120 a share -- or even $60, presumably the stock price after the split? The share price has more than doubled in the past six months, on its way to creating a nearly $9.5 billion market cap, despite the company's historical price/earnings ratio of 205.
With just a few exceptions, I hear alarm bells when a company starts trading in the triple digits. Investors in the triple-digit club have seen some pretty bright burnouts of late, with former high fliers Taser and Krispy Kreme flailing back to earth.
An opportunity with a caveat
And while I've been wary of RIM for a while now, I'm not as bearish on the company as I have been on some of the other triple-digit members. I believe that after the split, if a key issue is resolved favorably, the stock could represent a buying opportunity.
I mark that recommendation with a big ol' asterisk, however, pending the outcome of events on June 7. On that day, not only will the stock split, but the U.S. Court of Appeals for the Federal Circuit will hear RIM's appeal of the patent-infringement suit brought by NTP.
A district court granted NTP an injunction forbidding RIM to sell its products and services in the United States. If the higher court agrees with NTP, the injunction will last until NTP's patents expire, which won't happen until 2012.
As is common when a company has a large court case hanging over its head, the NTP suit has had a spillover effect.
Nokia (NOK: Research, Estimates), for example, has been hesitant to put BlackBerry functionality in its new devices, in part because of the uncertainty surrounding the case.
Says Kevin Burden, an analyst with IDC, "The NTP case will be a turning point for RIM. And it can go either way."
It's a risk
Of course, losing the appeal or being hit with onerous licensing restrictions could prove disastrous for RIM.
The continued run-up in the company's stock shows that investors don't believe such an outcome is likely -- and I cautiously agree. Many observers believe that even if RIM loses this appeal, it will strike a compromise with NTP in which RIM will pay $100 million in damages in exchange for having the injunction lifted. RIM representatives wouldn't comment on the case.
Once the patent case is resolved, investors can focus on the legitimate momentum the company has created during the past few months, and potential partners can gain a more complete picture of what licensing RIM software entails.
The company has formed some great partnerships with PalmSource and others, and its latest BlackBerry Server product is seen as a big leap forward. By this time next week, investors will know whether their RIM run-up was irrational or prescient.
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