Shares in silicon memory pioneer Rambus (NASDAQ:RMBS) once again jumped double digits yesterday to just shy of $35 per share, a gain of over 35% on the day. As the lead player in the hypergrowth cast of characters from the late 1990s, Rambus has survived and thrived to the glee of long-dedicated shareholders.
What moved the stock yesterday was the dismissal of an FTC antitrust case against the company. Government regulators had been scrutinizing Rambus for what competitors claimed were sneaky business practices. Rambus allegedly manipulated standards-setting processes in the memory market in order to lock in its proprietary designs and later demand royalty from them.
While the full report is not due until Monday, the statement makes it clear that the government didn't buy these assertions. True, the decision by the single judge is still open to review by the full FTC commission and the case could end up in appeals. However, this early indication from the FTC that the evidence did not merit a case in the first place lends a big boost to Rambus' credibility on the legal front.
So, has Rambus now truly crossed the bridge into legal legitimacy, where investors can more properly value the business without the huge risk of litigation overhanging? I believe so. Note that this doesn't necessarily mean that the risk level on the stock is down. Investing in the company is still far from a no-brainer -- it continues to carry a high valuation and is open to extreme volatility with other ongoing litigation. But going forward, Rambus will be easier to assess as the business matures and the impact of various lawsuits diminishes.
Recent historical precedence with peers such as ARM Holdings (NASDAQ:ARMHY), InterDigital Communications (NASDAQ:IDCC), and Qualcomm (NASDAQ:QCOM) shows that turbulence in the early years gives way to stable business models as the industry and market mature. While investors may think the big money has already been made, the future still holds potential surprises for a savvy buyer who doesn't overpay.
Still, a decision for placing your own hard-earned cash into Rambus shares should be based upon more than the average level of research. Companies that derive substantial revenue from licensing intellectual property and royalties encompass very complex business dynamics. This added twist can make the task more difficult, but also more rewarding.
If you've been a follower of Rambus on Fool.com for even a short time, there's obviously nothing new for you here -- move along! But if the company is now catching your eye and you want to learn more, the Rambus discussion board is the best place to get schooled, bar none.
Motley Fool contributor Dave Mock does not own shares of any companies mentioned in this article.
