By Modernist
Contributor at SeekingAlpha
Vringo (VRNG) is a software company focused on patent lawsuits. It won money from Google (GOOG), but the total amount is unclear.
Vringo stock has displayed mean reverting characteristics in recent months. However, I expect the stock could break its range dramatically in quarters ahead. Leading hedge fund Citadel may share this view as it bought volatility last quarter instead of shares. Here are several catalysts which could spike Vringo’s volatility beyond historical variance.
1) Math Error
The potential existence of a math error by jury members is the primary driver of sentiment for bulls publicly expressing opinions on Vringo. Many believe that the total winnings number as implied by the Jury should be corrected five to tenfold in favor of Vringo.
The Google verdict revenue was built with approximately two years of labor, although the actual timeline is longer. This situation would in average conditions imply a 4-6x winnings multiple for Vringo’s total valuation as a company.
Multiples often skew towards historical sales performance. If Vringo won a small amount from Google, this implies a smaller multiple. If Vringo won a large amount from Google, this implies a larger multiple due to the potential for repeated success in future litigation.
Without this skew, let’s say that one would multiply the winnings by 5 to arrive at an enterprise valuation. So, for example, if Vringo won $500 million, Vringo might be worth $2.5 billion.
With skew on such an upwardly adjusted verdict, one could see a multiple closer to 8, or a valuation of $4 billion, which is a return on share price over ten times current levels.
Currently the market appears to have assumed that Vringo won around $100 million. But optionality for a multi-billion-dollar market cap is also baked into the share price. Thus, the confirmation of no math error would be a negative catalyst for Vringo, which would skew its multiple on winnings downward. Although, this negativity from the removal of optionality would be far less dramatic than the runup (if Vringo actually won half a billion dollars as revealed by the math error).
read more…
By Modernist
Contributor at SeekingAlpha
Vringo (VRNG) is a software company focused on patent lawsuits. It won money from Google (GOOG), but the total amount is unclear.
Vringo stock has displayed mean reverting characteristics in recent months. However, I expect the stock could break its range dramatically in quarters ahead. Leading hedge fund Citadel may share this view as it bought volatility last quarter instead of shares. Here are several catalysts which could spike Vringo’s volatility beyond historical variance.
1) Math Error
The potential existence of a math error by jury members is the primary driver of sentiment for bulls publicly expressing opinions on Vringo. Many believe that the total winnings number as implied by the Jury should be corrected five to tenfold in favor of Vringo.
The Google verdict revenue was built with approximately two years of labor, although the actual timeline is longer. This situation would in average conditions imply a 4-6x winnings multiple for Vringo’s total valuation as a company.
Multiples often skew towards historical sales performance. If Vringo won a small amount from Google, this implies a smaller multiple. If Vringo won a large amount from Google, this implies a larger multiple due to the potential for repeated success in future litigation.
Without this skew, let’s say that one would multiply the winnings by 5 to arrive at an enterprise valuation. So, for example, if Vringo won $500 million, Vringo might be worth $2.5 billion.
With skew on such an upwardly adjusted verdict, one could see a multiple closer to 8, or a valuation of $4 billion, which is a return on share price over ten times current levels.
Currently the market appears to have assumed that Vringo won around $100 million. But optionality for a multi-billion-dollar market cap is also baked into the share price. Thus, the confirmation of no math error would be a negative catalyst for Vringo, which would skew its multiple on winnings downward. Although, this negativity from the removal of optionality would be far less dramatic than the runup (if Vringo actually won half a billion dollars as revealed by the math error).
read more…