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Kyle Ferguson
Kyle Ferguson
Articles (522)  | Author's Website |

FPA Capital Reduces InterDigital Stake as Company's Market Price Blossoms

InterDigital reached its 10-year high in price during the 3rd quarter

October 25, 2016 | About:

FPA Capital Fund (Trades, Portfolio), an investment firm that seeks long-term growth through the careful selection of common stocks and select fixed income securities, slashed its stake in InterDigital Inc. (NASDAQ:IDCC) during the third quarter, removing 359,582 shares of the company from its portfolio. The trade had a -3.79% impact on FPA Capital Fund (Trades, Portfolio)’s portfolio. The fund now owns 353,448 shares of InterDigital.


InterDigital has a market cap of $2.76 billion, a price-earnings ratio of 22.79, an enterprise value of $2.22 billion and a price-book ratio of 5.37.

InterDigital was founded in 1972. Over the course of 44 years, InterDigital has designed a wide range of innovations that are used in digital cellular and wireless products and networks. These products include 2G, 3G, 4G and IEEE 802 related products and networks. InterDigital is a leading contributor of intellectual property to the wireless communications industry. As of Dec. 31, 2015, InterDigital wholly owned subsidiaries held a portfolio of approximately 20,400 patents and patent applications related to a range of technologies, including the fundamental technologies that enable wireless communications. InterDigital believes that these patents may become essential in the future to 5G standards that are currently under development.

According to GuruFocus, InterDigital has a 6 of 10 financial rating with a cash to debt ratio of 3.06, an equity to asset ratio of 0.35, a Piotroski F-Score of 6 and an Altman Z-Score of 3.71. Its Beneish M-Score of -2.91 suggests that it is not a manipulator of its financial statements. The company also has an 8 of 10 profitability and growth rating with an operating margin of 42.95%, a net-margin of 31.71%, a ROE of 25.23%, a ROA of 8.81% and a ROC (Joel Greenblatt (Trades, Portfolio)) of 674.72%.

On Oct. 13, FPA Capital Fund (Trades, Portfolio) commented on InterDigital:

"As value managers, we seek to increase the size of our positions when the market disagrees with our long-term view, and do the opposite when the market ceases to provide us with an adequate margin of safety. We don’t always get it right, but InterDigital Inc. (NASDAQ:IDCC) epitomizes such behavior. When the market failed to recognize IDCC’s normalized earnings power, we reviewed our thesis, worked through our upside/downside case, and then took action by substantially increasing our position. Finally, this year, the seeds blossomed and we have substantially reduced our position."

Below is a Peter Lynch chart that shows InterDigital is trading below its intrinsic value.


Since FPA Capital reduced its position in InterDigital, the company’s market price has gained an estimated 21%.

Disclosure: Author does not own any shares of this company.

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