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 (VHC 1.07%), 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

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 (AAPL 0.64%) 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 (MSFT 1.65%) 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 (CSCO 0.37%), 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.