Please ensure Javascript is enabled for purposes of website accessibility

Why VirnetX Holding Corporation Plunged 26% in May

By Anders Bylund – Jun 2, 2015 at 7:03AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Is it meaningful, or just another random walk down Wall Street?

VHC Chart

VHC data by YCharts

What: Shares of mobile technology researcher VirnetX (VHC -2.01%) lost 26% of their value in May, according to S&P Capital IQ data. The plunge erased most of the share price gains VirnetX investors had enjoyed in February and April, and the stock dropped back to a 70% one-year decline.

So what: Last month, VirnetX shares dropped more than 6% overnight when the purported expert in intellectual property marketing hired outside help for its patent licensing operations. The damage deepened when VirnetX launched the Gabriel Collaboration Suite, a secure communications package, to a distinct lack of positive feedback. And when the results of shareholder votes at this year's annual meeting were released, it turned out that independent director Thomas O'Brien and Chief Technical Officer Robert Short received support for their boardroom positions from less than half of VirnetX's shareholders. That's a pretty clear vote of no confidence.

Now what: These wild market swings only underscore the speculative nature of VirnetX and its rickety business model. The company depends on successful lawsuits to monetize its patent portfolio, as regular licensing deals provide almost no revenue. Over the last year, VirnetX has recorded regular sales of $1.4 million but more than $27 million in selling, general, and administrative expenses.

In short, VirnetX is more like a poker chip than an investment. The company claims to hold the essential keys to running secure communications for 4G LTE wireless networks and the Internet of Things, which would be a guaranteed cash machine for many years to come. Ultimately, these lofty claims fall flat and VirnetX's share prices simply follow suit.

Anders Bylund has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Apple. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.