Research In Motion Heads The PDA Class

In the ongoing shakeout in technology and Internet stocks, the personal digital assistant sector is another in which investors appear to be sorting winners from losers.

And the edge seems to be going to Research In Motion , which is distinguishing itself both fundamentally and technically from the competition.

Research In Motion last week met earnings estimates of 5 cents a share and reaffirmed its guidance for the rest of the year. In the battered PDA sector (and in technology in general), that counts for good news these days. Palm , meanwhile, earlier this week exceeded lowered estimates with a 16-cent loss. RIMM’s stock has treaded water since the announcement, while PALM has gained substantially. That may be more a factor of where the stocks were before the company’s respective earnings announcements; RIMM more than doubled off its low of 17.90 before pulling back, while PALM was barely above its low of 3.90. The third big player in the sector, Handspring , reports earnings next month.

Palm and Handspring are sitting at about $6 and $7 a share, respectively, each down more than 90% from its high. At 30.66, Research In Motion sits about 70% from its high of 132.69. Not a pretty picture for any of them, but investors clearly seem to be giving the edge to Research In Motion.

The real difference shows up in the fundamentals and the charts. Research In Motion, which has focused on the corporate market, is expected to earn 27 cents a share this year, up from 11 cents last year, and 59 cents a share next year. That gives it a PE of 113 based on this year’s estimates and a two-year projected growth rate of 130%, making it somewhat reasonably valued, if a stock with a triple-digit PE can be called that. RIMM trades at 52 times 2002 estimates.

Palm is expected to earn 7 cents a share over the next year, up from a loss of 13 cents this year. That gives it a PE of 87 – but not much to measure growth by. In some unexplainable variation on the new math, earnings estimate services call the distance from a loss to breakeven 100%, giving Palm year-over-year growth of 152%, according to Zacks. Regardless of how you measure it, Palm is still doing better than Handspring, which is expected to lose 41 cents a share over the next year, an improvement of 20% over this year’s expected loss of 52 cents (based on a June fiscal year). Handspring and Palm are much cheaper than RIMM on a price-to-sales basis, with price-to-sales ratios of just over 1.25 compared to 8.62 for RIMM. Palm and Handspring have hurt one another with price wars, however.

And a look at the charts says it all. RIMM (first chart) is sitting right beneath its main downtrend line at about 35, something few tech stocks can claim. Palm (second chart) is sitting right at a secondary downtrend line. And Handspring (third chart) just cleared a downtrend line it managed to create in a rising market.

A word about risks, because they abound in this sector. The whole sector could face serious competition from the wireless handset manufacturers and PC makers. Compaq , for example, has done well with its iPaq. And one of these days Dell will wake up and see the threat to PC sales coming from below. But then that just might make RIMM, Palm and Handspring attractive takeover candidates.

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