The short interest rate for Research In Motion (RIM) has reached a new high as investors expect poor earnings report from the maker of the Black Berry smartphone. According to reports provided by research firm Markit, the short interest climbed to 4.2% of shares outstanding on August 24. Many on Wall Street do not seem to believe that the company will make a turnaround any time soon especially when its latest launch of devices has been pushed back for at least six months.
The short interest rate data is a very good indicator of investor confidence because it reflects the demand for short position on a stock. Customers can go long or short on a stock depending on where they expect the share price to go. If investors think a stock will move down in price, they short a stock by borrowing shares at the present price and then repaying them at a later date by purchasing a the expected lower price. If enough people do this, the short interest rate starts to increase thus indicating that investors are shorting the stock heavily.
RIM’s nose dive probably started several years back but it did not show any effect on the company until last quarter’s earnings report. The company posted its first operating loss since 2004 due to a drop in demand for its BlackBerry phones. The last two weeks have been bad for the stock also as prices dipped during 15 trading sessions out of sixteen 16. The overall outlook for the stock is just as bad and it has taken a 54% drop from the start of the year.
RIM currently has 78 million subscribers to its BlackBerry service but most of them cannot by any new phones because of the delay in bringing to market new devices. There are also consumers who have probably switched over from RIM to other brands like Apple’s iPhone or Samsung’s Galaxy. The BlackBerry device seems to not have kept up with the competition and its overall market share has reached new lows as devices carrying the iOS and Android operating system have dominated.
Source: Financial Post
Photo: TIME
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