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Seeking Alpha - Belkin Settlement with VRNG



http://seekingalpha.com/article/2508795-vringo-inc-reaches-settlement-with-belkin-international?uprof=46



Vringo, Inc. Reaches Settlement With Belkin International

Sep. 20, 2014 12:58 AM ET | 7 comments | About: Vringo, Inc. (VRNG)



Disclosure: The author is long VRNG. (More...)






Summary
•Vringo, Inc. and Belkin International, Inc. reached a settlement in principle on September 17.
•Since then, the stock has counter-intuitively suffered a 10% loss.
•Official details of the settlement will be disclosed formally on September 26, and we view now as a prime entry point to reap the rewards of the settlement.

Company Overview

Vringo, Inc. (NASDAQ:VRNG) is a small market-cap, telecom company engaged in the innovation, development, and monetization of intellectual property. Headquartered in New York, the company's intellectual property portfolio consists of over 500 patents covering telecom infrastructure and mobile and Internet technologies.

Settlement With Belkin

On September 17, VRNG reached a settlement in principle with Belkin International, Inc. The details of the settlement, including the amount, are still unknown. According to the court filing, these details should be affirmed and published formally by September 26, when a formal settlement is to be reached.

The legal issue in question was Patent Infringement, with VRNG trying Belkin for infringing on several of the 500 patents within its intellectual property portfolio.

Belkin International is a privately held company based in Playa Vista, CA. They are a major player in the computer and consumer electronics industry, specializing in hardware such as routers, cables, and computer accessories (memory sticks, CDs, etc.). Due to its privacy, however, it is almost impossible to gauge the size of the settlement at hand.

Our Opinion

It is our opinion that becoming a long investor in VRNG is currently a strong move.

Since news of the settlement was released, the stock has suffered a 10% decrease. While this is counter-intuitive to how we expected the stock to react, this is not shocking. A massacre to VRNG stock following an appeal court case loss to Google has left scars on investors that 'settlements in principle' alone cannot heal.

But cash is cash - and that's exactly what Vringo will get on September 26. How much? We don't know, and don't care to speculate. The mere news of a settlement reached, and incoming cash, injects life into the previously hopeless VRNG.

We believe that, as a result, the stock will climb soon. Let's take a look at the chart.

VRNG Chart

VRNG data by YCharts

We pay particular attention to the recent RSI - stock-price divergence. Since the settlement news, the RSI index has climbed nearly 40%; likewise, the stock has tumbled 10%. It is widely accepted that a widening RSI - stock-price divergence is a signal of a sudden change in stock-price momentum. An increasing RSI and a decreasing stock price is a bullish signal that the stock will reverse its momentum and begin to increase in line with its RSI; likewise, a decreasing RSI and an increasing stock price is a bearish signal that the stock will reverse its momentum and begin to decrease in line with its RSI.

What we have here, in the short term at least, is a very bullish signal due to settlement news. Seeing that the divergence is only widening and that we are less than a week away from a formal settlement, we believe now is a great entry point for long investors looking to reap the rewards of this settlement news.


Editor's Note: This article covers a stock trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.