Rambus (RMBS)

[Skeptic]

I appreciate your optimisim Threejack. I'm the guy that always sees the glass as half empty. I still have more Leaps than I am short, but I think there is more potential downside than you think. I think the easiest way to get a sense of where the bottom might be is to look at the valuations of comparable companies. My favorite metric is Enterprise Value / EBITDA. Enterprise value takes into account the value of the company's debt and their cash. EBITDA is really just operating earnings and removes funny stuff like a 2.7 million gain from foreign tax credits.

Rambus trades at an EV/EBITDA of 45. This compares to IDCC and ARMHY which are both ~28. These two companies are very appropriate yardsticks given their similar IP only business models. For Rambus to come in line with these other two, it equals a stock price of ~10.3. There is still a lot "litigation hope" baked into the price which I don't see coming to fruition for at least another year and a half when the AT suit is in full gear and the CAFC has had a chance to correct the Payneful district court's mistakes.