One of the cheapest stocks in our All Investable – Stock Screener is InterDigital, Inc. (NASDAQ:IDCC).
InterDigital Inc (InterDigital) designs and develops advanced technologies that enable and enhance wireless communications and capabilities. Since 1972, InterDigital engineers have designed and developed a wide range of innovations that are used in digital cellular and wireless products and networks, including 2G, 3G, 4G and IEEE 802-related products and networks. The company is a leading innovator in the wireless communications industry and a recognized thought leader in 5G and the IoT technology.
A quick look at the company’s share price (below) over the past twelve months shows that the price is up 59% to $85.45 compared to March 2016. That is 17% off its 52 week high of $102.30.
(Source, Google Finance)
InterDigital is a leading innovator in the wireless communications industry and a recognized thought leader in 5G technology. Despite posting a 51% increase in FY2016 revenue compared to the pcp, short-term investors have recently chosen to focus on the company’s short term Q1 2017 revenue which presents a great opportunity for longer term focused investors.
What seems to have been overlooked by these short term investors is that by the end of 2016 InterDigital had the top three smartphone manufacturers in the world; Samsung, Apple, and Huawei, under agreement which provides the company with ongoing revenue stability and visibility. Add to this the company’s strong competitive advantage, which has been achieved through its collaboration with standards bodies, equipment manufacturers, and software solution providers. This was highlighted with InterDigital joining Avanci in 2016.
Cooperating with Avanci, partners like Qualcomm, Ericsson and others represented the most effective and efficient means of pursuing InterDigital’s licensing of what will be a vast and diverse market. Other collaboration examples include InterDigital’s recent strategic technology partnership with CA Technologies, a leading software solution provider and Harman, a connected technologies company for automotive, consumer and enterprise markets.
It’s these types of collaborations, combined with the company’s smart acquisitions, like the 2016 acquisition of Hillcrest, combined with the sizeable opportunities in 5G and IoT that will sustain InterDigital’s revenue growth and strong position into the future.
InterDigital is an extremely low-cost operation with gross margins of 83% (ttm), operating margins of 66% (ttm), and net income margins of 47% (ttm). The company is operationally efficient with a strong balance sheet and loads of free cash flow.
In terms the InterDigital’s valuation. The company is currently trading on a FCF/Price Yield of 13% (ttm), a FCF/EV Yield of 17% (ttm) and an Acquirer’s Multiple of 5.15, or 5.15 times Operating Earnings. Add to this the company’s P/E of 9.75 and InterDigital remains squarely in undervalued territory.
You can read our full stock analysis on InterDigital at ValueWalk here.
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