Stocks today act like tech bubble in Y2K? Part 2

These days the most popular tech name in Canada I believe is Research In Motion. So I'll check RIMM to see if it deserves to be a bubble at today's price.

RIMM has experienced some negative earnings along the way, so I'll use the gross profit for now for simplicity.

Annual gross profit ending Feb 1999 was $18.6 million, while gross profit ending Feb 2007 is $1.66 billion. Well, it's 89 times. Okay, what about I use net income as measure, not to care that at some point in time net income decreased then going back up. Anyway, I'll show you what I mean.

Annual net income ending Feb 1999 was $6.4 million. Guess what, net income ending Feb 2007 is $631.6 million. 98.7 times, my friend.

RIMM's stock price (in $US) was $1.47 by end of Feb 1999 and $46.87 by end of Feb 2007 (adjusted for all stock splits). So, that is an increased of about 32 times. Hey, even lower than the increase of net income.

With RIMM trading at $122 today, that came to an increase of 83 times from $1.47. So, can I say RIMM is overvalued??? If $1.47 made sense by that time, shouldn't RIMM have gone up by 99 times to $145 by Feb 2007 already???

Okay, maybe I missed something. Earnings per share by Feb 1999 is $0.10. So with an unadjusted price of $8.88, RIMM's P/E back then was 89, quite high. Let's say we think a P/E of 30 should make more sense back then (30 is actually pretty low for a small growth stock), it will make the starting price became $0.50 instead of $1.47. So if we believe $0.50 was more fair by that time, given that net income increased 99 times, as at Feb 2007 RIMM should trade at $49.50. So, the actual price of $46.87 by end of Feb 2007 was not bad.

Now, with RIMM sitting at $122 per share, a bit more than double from Feb 2007. To me, it means if RIMM can show a net income increase by double then I think the price make perfect sense. Anything less than a double is more like a miss to me. Since $46.87 at Feb 2007 makes sense, so at least I will say RIMM was not a tech bubble by that time.