Re: Briefing.com blurb
InterDigital Communications (IDCC): here is a stock that produced a great earnings report, with stronger revenue and earnings, which is helping the stock today, but most of the long term investors are still way, way, below their entry point.
I don't think so. Except for the bubble and the past six months, IDCC is at all time highs. Buyers during the last six months couldn't be considered long term, and I've got to believe that people that bought during the spike up have either sold or averaged down if they believed in IDCC enough not to sell.
The problem is that the stock is still driven by concept investors who believe that the company's intellectual property rights on basic wireless technologies, primarily useful in 3G wireless technologies, will eventually reap huge rewards in royalties. Ironically, this type of faith tends to drive the stock far beyond a rational valuation.
Only if you define rational valuation only by multiples of reported earnings and ignore new revenue sources, no matter how large or how probable. I think rational valuation includes looking at potential and weighing in the expected range and probability of that potential. I thought that was called investment research and an integral part of rational valuation. I guess I'm just an ignorant “concept” investor.
When the company's fortunes turned around earlier this year, and the revenue trend started upward, investors drove the stock to the $28 range, or a $2B market cap, based on expectations that the huge royalty future was coming. When the Q2 revenues were only slightly ahead of the year-prior, the stock lost 50% of its value, to about today's level.
The stock fell because Nokia did not accept their contractual obligation and unexpectedly entered into arbitration, not because of the Q2 results. The stock is closer to 75% of it's recent peak, and anyone who bought at 50% got the low.
The stock is still driven by concept investors, yet most of the promise in the royalty stream is based on in-progress arbitration and lawsuits with Nokia and Samsung.
Yes, plus 3G licensing, which is also in-progress. Again, the “concept” is doing research and projecting the future, based not only on the ongoing but also the expected.
The lesson here? You need to know what is driving the price of your stock. It might appear that today's solid report is driving the stock, but the truth is the entire valuation of IDCC will likely hinge on the outcome of the discussions with Nokia and Samsung. A fundamental analysis is almost irrelevant right now.
Actually, this is largely correct. Current operations give IDCC a great base - recurring revenues exceed operating expenses, cash flow is excellent, however, if no other licenses materialize then IDCC is not a $20 stock. Fundamental analysis that consists of projections that include only current licensees will show IDCC is overvalued. But (and this ‘but’ is almost as big as mine!) there will be a rate set for 2G for Nokia, Samsung, and then the many others waiting on the sideline. IDCC will get 3G licenses which will bring revenue that will rise and continue with the 3G market. Right now, the market is pricing in very little for these. If you believe IDCC will get 2G revenues from the great unsigned masses and that they will sign 3G licenses with the bulk of the market, then it is hard to imagine IDCC having less than $2.00 a share in recurring revenue and a growth rate tied to 3G growth. Plug in those numbers to fundamental analysis and the share price should be at least 2x the current level.
All of these issues have to do with risk. Risk is unavoidable, but the real threat is ignoring the risk inherent in any investment. It is generally a good principle to spend more time thinking about the risk inherent in your investments than you do the reward. That's the lesson of all three of these stocks reporting this morning. - Robert V. Green, Briefing.com
Yup, this is a volatile, risky stock. Not for the faint hearted. But with risk comes reward, and IMO the risk/reward ratio is highly skewed to reward for IDCC. I don't think the share price will make a real move to the next level until there is some resolution on 2G and 3G, and it may not come until next summer. The "concept" to remember is to focus on the long term and unless you find something that makes you doubt IDCC's ability to collect on 2G and 3G, don't sweat the dips that are inevitable with this or any volatile stock, nor worry about commentary by folks who don’t know nearly as much about IDCC as you do.
