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Markets

RIMM Means Really Incredible Market Moves

New versions of the BlackBerry are boosting Research in Motion's profits, but the shares are pricey.

The global, round-the-clock workforce depends on Research in Motion, the maker of the ubiquitous BlackBerry. Now a major force among smart phones, the BlackBerry combines voice and data functions in a single, streamlined gadget. For better or worse, some heavy users find the little message center so addictive that they've given it the nickname CrackBerry.

Apparently, the company's stock is addictive, too. At $104 in mid December, the price had more than doubled from the start of 2007; since October 2002, the shares were up more than 70-fold. But bouts of withdrawal can pare the share price by double digits in days (the stock had hit $137 in early November).

With swings like that, Research in Motion's stock symbol, RIMM, might as well stand for Really Incredible Market Moves. Incredible, yes. But how do you know whether to side with the profit takers or the bargain hunters?

That's a tough call. The answer depends on whether you can handle the risks of owning a highflier while focusing on the long-term prospects of a proven market leader in a fast-growing field. If you're lucky enough to be sitting on a windfall, locking in at least some of your gains might allow you to stop fretting about the present and to focus on the future -- which, in RIM's case, looks great.

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The company, based in Ontario, Canada, derives about three-fourths of its revenues from BlackBerry devices, including the newer, slimmer BlackBerry Pearl and Curve models. With their built-in cameras and music players, these smart phones appeal to the not-so-buttoned-down set. But Research in Motion also makes money from servicing and licensing BlackBerry technology to other wireless carriers. All told, there are 10.5 million BlackBerry users in 125 countries.

The bullish case depends in part on the increasing importance of smart phones within the broader wireless-phone market. Smart-phone sales are growing 36% a year, yet the devices will account for just 19% of handsets by 2010, says Credit Suisse.

Businesses account for the bulk of sales, but in the quarter that ended last September, the most recent for which data is available, 32% of new subscribers were Rprosumers,S professionals who subscribe or buy on their own. Similarly, North American users accounted for 68% of new subscribers, but RIM is expanding rapidly in China, Europe and Latin America.

The bulls, anticipating annualized earnings growth of 40% over the next few years, see the stock hitting $160 in the coming year. Pessimists are concerned about the weakening economy and tough competition from Apple's iPhone. For now, though, fans of the iPhone favor it for downloads, while Black-Berry users are primarily communicators.

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Some analysts find it hard to justify the stock's lofty price-earnings ratio of 32, based on year-ahead earnings forecasts (compared with 15 for the overall stock market). "The stock should trade at a premium, but how much is a matter of discussion," says Standard & Poor's analyst Todd Rosenbluth. He thinks the stock is fairly valued at $100.

And in today's skittish market, even a minor corporate misstep can result in a pounding. That might not be a bad thing for those looking to invest in a premier company at a more reasonable price -- anything in the $80 to $90 range would qualify. No one can say whether the stock will retreat that far, or when. But in case it does, you might want to tell your favorite stock-alert service to send a missive to your BlackBerry.