Wall Street Loves VirnetX. Should You?

Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers all believe these companies will beat the long-term averages, well, surely they will -- right?

Not so fast! With help from Motley Fool CAPS, the 180,000 member-driven investor community that translates informed opinion into stock ratings of one to five stars, we'll see whether these highflying favorites deserve analysts' unwavering support.

Today we'll take a look at wireless security specialist VirnetX Holdings (NYSEMKT: VHC  ) , which says it's the owner of essential patents related to the security standards for 4G and LTE. Amongst the analysts that CAPS tracks, only two have weighed in so far on the shop that's taking on -- and beating -- the world's top tech giants. Yet the investor community isn't nearly as supportive, with just 56% of those registering their opinion agreeing it will go on to outperform the broad market averages.

VirnetX Holding snapshot

Market Cap

$1.6 billion

Revenues (TTM)

$0.0 million

1-Year Stock Return

37.3%

Return on Investment

(26.7%)

Estimated 5-Year EPS Growth

20%

Dividend and Yield

N/A

Recent Price

$31.05

No. of Analysts

2

CAPS Rating

*

Source: FinViz.com. N/A = not applicable; VirnetX doesn't pay a dividend.

But just because Wall Street loves 'em, that doesn't mean you have to. Analyst sentiment is only just the jumping-off place for your own research.

Hot to trot
Fresh off a win against Apple (Nasdaq: AAPL  ) for patent infringement, in which a jury awarded it $368 million in damages, VirnetX just filed another lawsuit against it for the latest versions of the iPhone, iPad, and Mac computers, as they weren't included in the last legal tussle.

While there are those who call VirnetX a patent troll, it is starting to license its technology for securing real-time communications over the Internet. VirnetX acquired its patents from SAIC (NYSE: SAI  ) in 2006 and immediately filed a lawsuit against Microsoft (Nasdaq: MSFT  ) alleging infringement. After a lot of wrangling, Microsoft was found guilty of infringing on the patents and ordered to pay $200 million, at which time it began licensing the technology. NEC (NASDAQOTH: RNECY), in exchange for being removed from a lawsuit, recently agreed to license the technology. VirnetX still has challenges outstanding against Avaya, Cisco (Nasdaq: CSCO  ) , and Siemens (NYSE: SI  ) ,  and with its track record thus far it seems likely it will be successful with them, too.

Patently absurd?
The investment risk to VirnetX is that it might not be able to extract as much money as it believes is warranted. Despite the win against Apple, it's reported that the amount awarded was about half of what VirnetX was seeking. And then there will be the appeals that will eat into its finances. The lever the patent holder has, though, is that it could seek to block further use of the technology in Apple products, though licensing is the ultimate goal.

The whole mobile-phone sector is enmeshed in a global patent fight with Apple, Samsung, HTC, Motorola, Google (Nasdaq: GOOG  ) , and others suing each other and everyone else. It's a tangled mess to be sure, but if anyone has momentum in the courts and in the market, it appears to be VirnetX. I've rated the security specialist to outperform the broad market averages on CAPS because of the apparent strength of its claims, and thus far that CAPScall is paying off. VirnetX's shares are up 32% since I weighed in earlier this year, compared with a 1% drop in the S&P 500, but tell me in the comments box below if you think VirnetX Holdings is just getting started or will ultimately get tied up in court.

Agree to disagree
There is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.


Read/Post Comments (4) | Recommend This Article (5)

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 November 18, 2012, at 11:52 AM, seamonkey2002 wrote:

    "Despite the win against Apple, it's reported that the amount awarded was about half of what VirnetX was seeking."

    And about 40X what Apple believed was fair "if" they were indeed found to have infringed! AND - Apple was found guilty of infringing on all counts! Next up, Cisco...as having willfully infringed...can we say HUGE settlement coming soon with major ongoing royalties?!?

    Nice try FOOL!

  • Report this Comment On November 26, 2012, at 10:28 AM, Casual72 wrote:

    I'm a long term holder and I'm in at $38....so I think this stock might be a waste. I have begun selling calls because of the huge premiums involved and the high volatility of stock. One option has already expired worthless (I kept the premium) and I am currently short a Dec 30 call which is in the money, but I sold it for $500 so anything below $35 and I'll win. If the stock rockets I'll let them take it and wait for the inevitable drop....

    I just don't know about investing in a stock with zero revenues and praying for lawsuit wins. If they every lose or the courts start going against them, this stock goes to zero.

    I think it's a lot of hype and hot air.....

  • Report this Comment On November 27, 2012, at 4:30 PM, TheMotleyTool wrote:

    Take into consideration the royalties received from licensing deals. Ive never been more confident in this company.

  • Report this Comment On December 04, 2012, at 8:17 PM, mobileamerica wrote:

    Who ever buy into this virnetx troll are absolute uneducated backward thinking people. It's hard to imagine a cult with 0. I mean 0 revenue, bankrupt company be allowed to issue stock.

    Wasn't there a policy in which for a company to ipo, issue stock raise money, they must generated at least 1 million annually. A company with 0 revenue can be worth billions, more than radio shack, best buy, zynga,walter energy, molycorp, navistart international, the list goes on and on. These other companies are legitimate billion dollar corporation who actually produce or sell something and create jobs.

    This is a total scam. Robbing ignorant investors right in front of them. The stock market no longer has merit. Any trust in the stock market no longer exist.

    Security Exchange Commission needs to investigate this company and figure out why this company with barely any employees worth so much.Maybe SEC were bought out,bribed.I really have to report this company to SEC. I feel people are tricked.

    Look people if you really trust this company, look at their financials,and profile. If you still trust this company and the stock market, then you're better off throwing your money away.

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