Do the Shorts Know Something About Vringo You Don't?

Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short-sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into profits.

We'll take a look at video-ringtone maker Vringo (NYSE: VRNG  ) , which saw some of the largest percentage increases in shares sold short in the last reporting period. We'll take a look at why short sellers might be eyeing the stock and combine that with the collective intelligence of Motley Fool CAPS to see if Fools believe it has the power to make short work of short-sellers.

Vringo snapshot

Market Cap $202.1 million
Revenues, TTM --
1-Year Stock Return 157%
Dividend and Yield N/A, N/A
Recent Price $3.47
Shares Short, Sept. 4 4.0 million
Shares Short, Aug. 15 2.8 million
% Change 34.2%
CAPS Rating (out of 5) **

Sources: wsj.com, FinViz.com. TTM = trailing 12 months.

Just because the shorts are piling in doesn't mean you should, too. Such stocks could have serious problems that warrant their short interest, but they might also just be stricken by short-term troubles. Only Foolish due diligence will tell you for certain, and our 180,000-strong CAPS community offers a good place to start.

The short story
With a short interest coverage ratio of just a day, don't expect to see any short squeeze lifting Vringo's shares to lofty heights. Even though it amounts to nearly 9% of the video ringtone maker's shares outstanding, there won't be any pressure to bubble up the valuation. That's OK, because between the lawsuits it has against Google, Gannett (NYSE: GCI  ) , Target, and others for patent infringement following its merger with Innovate/Protect earlier this year, the purchase of Nokia's (NYSE: NOK  ) patents related to wireless standards, and the very real possibility it will be acquired, Vringo has enough going on to boost the stock on its own.

Vringo is suing Google and others for violating patents related to sorting ads based on click-throughs and recent Markman hearings upheld most of Vringo's claims, though that means little when it comes to trial. A Markman hearing just irons out interpretations of various patent claims before a trial begins, and some smart Fools believe it's not such a slam-dunk case. But AOL (NYSE: AOL  ) recently settled with Vringo, and one analyst thinks there could be a windfall of as much as $924 million to come of it.

The patents it got from Nokia for $22 million last month cover what the handset maker terms "essential" standards, and while Vringo is on the hook for payments still to Nokia depending on revenues received from them, it becomes another arrow in its quiver.

Which may be the reason Apple (Nasdaq: AAPL  ) or Google ends up acquiring Vringo. There's speculation that the CEOs of the two companies met last week in "secret" to divide the market between them like it was post-World War II Potsdam carving up Eastern Europe. Google has previously expressed interest in acquiring Vringo, but with both facing down a fierce competitor in Samsung they may be forming a united front against it. If Google doesn't want Vringo, then perhaps Apple could acquire it and Nokia, since Google has all the mobile IP it needs after acquiring Motorola Mobility.

Obviously there's just a lot of speculation, and perhaps short-sellers think it will all come to naught, and Vringo is subject to calls of being a patent troll. CAPS All-Star jwray01 looks askance at Vringo's new business model, saying its actual business is a money loser. Certainly litigation has become a way of life in the mobile market, but tell me in the comments section below if you think Vringo has a valid claim on the market or if it's just trolling for cash and can't sustain its current valuations.

Don't sell yourself short
Share your views with the CAPS community: Squeeze 'em till it hurts, or short 'em till the sun don't shine?

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Editor's note: A previous version of this article had incorrect data in the table. The Fool regrets the error.

Fool contributor Rich Duprey owns shares of Apple, but he holds no other position in any company mentioned. Check out his holdings and a short bio. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple and creating a bull call spread position in Apple. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days. The Motley Fool has a disclosure policy.


Read/Post Comments (3) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 12, 2012, at 7:00 AM, espalha wrote:

    Really? You sure this article is for VRNG??? where's the 3.8 billion market cap and the 24.58 share price? If it was at 24.58 i would be rich.

  • Report this Comment On September 12, 2012, at 7:42 AM, mcreel65 wrote:

    Are you maybe predicting that the price of vrng is going to $24.58 very soon? That would be awesome! Right now their market cap is 116.83M and the share price is 3.47,but I like your numbers much better.

  • Report this Comment On September 12, 2012, at 8:13 AM, gointocalif58 wrote:

    Once again Motley shows what FOOLS they are. Citing another companies Stats on a VRNG so called storyshows you have NO CREDIBILITYTO ANY OF YOUR READERS ! WHAT A COMPLETE SHAM YOUR ARTICLES ARE! Rich needs to find a new job, he just embarrissing you.

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