4 Red Flags for This Patent Troll

Investing in patent trolls -- companies that aggressively and opportunistically sue larger companies for patent infringement -- has become a popular strategy with investors recently. After seeing Vringo's stock rise almost 250% in 2012, investors are eager for exposure to more patent enforcement cases. This has led them to bid up the shares of Parkervision  (NASDAQ: PRKR  ) 67% in the past three months. 

Parkervision, based in Jacksonville, Fla., designs radio frequency technologies for use in wireless semiconductor circuits. Presently, Parkervision is engaged in a legal battle with Qualcomm over patent infringement, and some investors are seeing dollar signs. I'm less enthusiastic, especially after reviewing the history and financial metrics of the company. Below are four major red flags that investors need to consider before investing in Parkervision.

1. Cash burn
Parkervision generates no revenue and no profits. And, it's burning cash at an alarming rate. Over the past year, its operating cash was negative $13.4 million -- lawyers aren't cheap!  At that rate of cash burn, the company will exhaust its current supply of cash in a year. If the company is to survive, it will need to raise additional capital, which leads into my second red flag.

2. Dilution
Management treats the company's shares like toilet paper. According to Capital IQ, the company's weighted average shares outstanding were 8.7 million in 1994. As of its last 10-Q, the company has 82.9 million shares outstanding -- an increase of almost 10 times.  In other words, if you owned 10% of the company 20 years ago, you'd own just over 1% of the company today.  And, it's not like you'd have gotten a smaller slice of a bigger pie -- you'd have a smaller slice of a smaller pie.

3. Management's 20-year track record
Management, led by CEO Jeffrey Parker, has done a horrendous job of creating shareholder value over 20 years. The company has generated losses every year since 1993.  It has never paid a dividend. Since its IPO 20 years ago, the stock has lost 50% of its value while the S&P 500 index advanced 237%. 

4. Low CAPS rating
As Fool Brian D. Pacampara pointed out in September 2012, Parkervision received the dreaded one-star rating in Motley Fool CAPS, the Fool's free investing community. Over 100 All-Star Players have rated Parkervision, and more than 90% predict that it will underperform the S&P 500.  Here's what member MMCapitalMgmt had to say:

Since 1993, the company has only lost money, both in the form of net income/earnings for shareholders and cash flow from operations. How is this company even in business? It consistently burns cash and contributes losses for shareholders. There isn't a possible way in which PRKR will not continue heading toward zero. By any valuation metric, the only value of the company is its existing assets.

Foolish bottom line
Parkervision has wantonly destroyed shareholder value over 20 years. The company has never been able to generate profits in the marketplace with its technology and patents. Now, management expects to monetize the patents via lawsuits. After reviewing the company's historical performance and management's track record, I'm very skeptical. I'd advise that Fools proceed with extreme caution.

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Read/Post Comments (5) | 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 January 30, 2013, at 1:11 AM, Shortnomore wrote:

    Interesting Brendan that Parkervision has never sued for patent Infringement prior to discovering that Qualcomm stole their technology but you count them a Patent Troll? An obvious bias right out of the chute with your piece. And in this case, it's a David facing off with a Wall St Goliath. Your well-worn review of Parker's poor business model isn't news - the real news is almost every court ruling coming from the court has gone against Qualcomm. With a positive Markman pending - which is very possible - and Qualcomm has a corker of a infringement case on their hands. You turned to the tired short story and missed the real news in this case. Trebled damages await.

  • Report this Comment On January 31, 2013, at 12:03 PM, Samandy7 wrote:

    Surely messrs. Sonsini, Cronin, Revette and others

    that have been advising Parker are desperately in

    need of money or they would certainly not endanger

    their reputation in the pursuit of such an obvious loser.

  • Report this Comment On February 03, 2013, at 6:36 PM, Shortnomore wrote:

    "...such an Obvious loser?" The only thing obvious is that you haven't been following this case. The rulings issued so far by the Federal court have almost completely favored Parker Vision. It's not even close. Either you don't know anything about this case or you do know -- and are trying to deceive.

  • Report this Comment On February 08, 2013, at 9:40 AM, Samandy7 wrote:

    Hey, Shortnomore, you missed my point on 1/31.

    Sonsini, Cronin and Revette are NOT Desperate

    for money and believe very strongly in Parker

    winning big.

  • Report this Comment On June 02, 2013, at 11:28 PM, Mega wrote:

    They're lawyers. As long as PRKR can pay their bills, they don't care if they have a valid case or not.

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