Undervalued Micro-Cap Network-1 Technologies Inc, FCF/EV Yield 134%

Johnny HopkinsNTIP, Stocks Comments

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One of the cheapest stocks in our Small & Micro Cap – Stock Screener is Network-1 Technologies Inc (NYSEMKT:NTIP).

With a market cap around $89 million, very few investors have ever heard of this great little company. Network-1 Technologies Inc (Network-1) has a remarkable record of taking on and beating technology behemoths like Apple and Microsoft in court.

Network-1 is engaged in the development, licensing and protection of its intellectual property assets.  The company presently owns twenty-eight (28) patents including, The Remote Power Patent, The Mirror Worlds Patent Portfolio, The Cox Patent Portfolio, and The QoS Patents.

A quick look at the company’s share price (below) over the past twelve months shows that the price is up 104% to $3.80 from $1.86 in March 2016. That is 10% off its 52 week high of $4.15, but closer inspection shows that the stock remains undervalued.

(Source, Morningstar)

Network-1 is a great little company with a impeccable record of winning litigation settlements against tech heavyweights Apple, Microsoft and Dell. With a market cap of $89 million the company is way too small for most institutions with just 10% institutional ownership. Network-1 clearly has a good eye for acquiring the right patents to add to its portfolio. Recent favorable settlements have included Apple ($25 million), Dell ($6 million) and Alcatel and ALE USA Inc. ($1.9 million). Current litigation with Google and YouTube is also proceeding well.

In terms of its patent runway, Network-1 has recurring revenues from quarterly or annual royalties associated with the company’s Remote Power Patent which expires in March 2020. It is reasonable to expect that these revenues will be further boosted by favorable court rulings against the four remaining defendants for infringement of the company’s Remote Power Patent.

Add to this the October decision by the PTAB in favor of Network-1 regarding the company’s Cox Patent Portfolio. The PTAB ruled that Google had failed to show that any of the thirty-four (34) claims of U.S. Patent 8,904,464 were unpatentable. The company continues to grow its patent portfolios highlighted by the February 2017 announcement that Network-1 had received a new patent from the U.S. Patent Office expanding its Cox Patent Portfolio to seventeen patents.

The company is an extremely low cost operation with a strong balance sheet and ability to generate a loads of free cash flow. A quick look at the Network-1’s balance sheet ending September 2016 shows that Network-1 had cash and cash equivalents of $59 million and zero debt. If you could buy the entire company at its current market cap of $89 million and you would get $59 million in cash and cash equivalents.

In terms of Network-1’s valuation. The company is currently trading on a FCF/Price Yield of 45% (ttm), a FCF/EV Yield of 134% (ttm) and an Acquirer’s Multiple of 2.62, or 2.62 times Operating Earnings*. Add to this the company’s P/E of 3.72, a P/B of 1.7 and a P/B of 1.44 and Network-1 remains clearly undervalued despite the 104% growth in the company’s share price over the past twelve months.

You can read our full stock analysis on Network-1 at ValueWalk here.

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