Today, let's look at three things investors should be watching regarding InterDigital, as they will provide us better insight into the company.
1. Patent development and sales
With no tangible products, InterDigital is a royalty and licensing machine. Its approximately 18,000 patents are licensed out to wireless providers and incorporated into wireless connectivity products like cellular phones, tablets, notebooks, and digital PDAs.
In addition to consistently adding to its patent portfolio, InterDigital is looking to maximize shareholder value by unloading patents if it gets a fair price. Recently, InterDigital sold roughly 1,700 patents, mostly 3G, 4G LTE, and 802.11 technologies, to Intel
Understanding the going price for patents (i.e. whether they're rising or falling) and keeping an eye on the amount of time it takes for InterDigital to replace those patents or licenses is a key to understanding InterDigital's cash flow.
Unsurprisingly, with patents and licensing comprising InterDigital's entire lifeline, ensuring that its technologies are well protected is essential. Last week, for instance, the U.S. Court of Appeals for the Federal Circuit revived a previous lawsuit InterDigital brought against Nokia
Patent lawsuits don't translate into long-term recurring revenue as Foolish analysts Austin Smith and Andrew Tonner discussed last week, but they can provide huge one-time pops. VirnetX Holdings
Keeping a watchful eye on which companies InterDigital is suing and vice versa is imperative to owning this company.
3. Shareholder value actions
The final factor worth keeping an eye on with InterDigital is what actions it's taking to enhance shareholder value. Given that InterDigital has no tangible products, InterDigital will occasionally turn to patent sales and has, at one point, actually put its entire company up for sale (unsuccessfully, might I add).
In addition to selling patents and licenses, InterDigital recently used $100 million from the $375 million it received from Intel to double the size of its authorized share buyback program to $200 million. Personally, I would rather have a dividend any day than a buyback because companies are often poor predictors of when their stock is at an attractive valuation, but it's at least a step in the right direction. It's also worth noting that InterDigital's $328 million in net cash gives it ample buying power to itself turn into an acquirer if need be.
Understanding what InterDigital is doing with its cash in order to boost shareholder value is the final piece of the puzzle.
Now that you know what to watch for, it should be easier to analyze InterDigital's successes and pitfalls in the future and hopefully give you a competitive investing edge.
If you're still craving even more info on InterDigital, I would recommend adding the stock to your free and personalized watchlist so you can keep up on all of the latest news with the company.
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Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on Motley Fool CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.
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