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FleaBagger (32.74)

Why do people like this have a job?

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June 24, 2008 – Comments (2) | RELATED TICKERS: IMMR

I just read the article about MarketWatch interviewing David Trainer, found here. If you took the time to read that before coming back here, you probably know what stood out to me. IMMR would take 100 years at its current growth rate to justify its current valuation? Really, Mr. Trainer? Let's explore that.

Its current valuation is $140M in cash, $70M in non-cash equity (though prehaps more like $90M at the time of the interview), and $0 debt. Its annual revenue $30M. That does seem small, huh? And their 5 year compound annual revenue growth rate averages about 14%. Let's see how many years it takes $30M to turn into $70M growing at 14% per year. (If you've done this sort of thing before, you have a pretty good idea.) Hmm, it's just under 7 years. Not 100. So I guess David Trainer is waiting for cash flow or net income to exceed $70M.

But soft! Lo, the free cash flow picture is even better for IMMR than their revenue picture. They been generating a lot of cash from "investing activities" this past quarter. What does that mean? It means that they got a lot of cash from a lawsuit settlement a year ago and they put a lot of it into interest-bearing investments because they had all the operating cash they needed.

Well, okay, maybe our learned Mr. Trainer is talking about net income minus extraordinary items. Backing out their gains from the lawsuit, they have never turned a profit. So what is their income growth rate, backing out extraordinary items? Maybe Mr. Trainer is using "100 years" as a euphemism for never and valuing the company based on the trajectory of their net income struggling to reach 0, if you back out extraordinary items.

If that's the case, I have to wonder: why back out the most significant thing in the valuation of a company? Is that some slavish devotion to a formula? Is there any chance that Immersion Corp. (the company, not the stack of numbers on Yahoo!Finance) could get another huge royalty payment/lawsuit settlement? No? None? I guess it's impossible that their earnings are lumpy because they're still small, and that they have 100's of patents on radical new technologies with almost limitless applications in computing, medical training, video gaming, smartphones, education, and fields not even invented yet because this is the technology of the future. I suppose that's not possible, Mr. Trainer.

Now I know what David Gardner meant when he said he looks for stocks that have been called overvalued by someone in the financial media. Mr. Trainer's words are kind of inspiring to me.

2 Comments – Post Your Own

#1) On June 24, 2008 at 5:40 PM, DemonDoug (98.73) wrote:

flea i don't know man.  they haven't really been able to monetize their product outside of lawsuit settlements.  they need to be bought out by appl or sne or msft for the stock to be profitable.  because their products are adjunctory to real products - kind of like those biotech companies that take 2 drugs and put them together in some funky new delivery system, partnering with a big pharma (like flml).

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#2) On June 24, 2008 at 6:37 PM, FleaBagger (32.74) wrote:

Is it really that bad? Biotech that combines two drugs?

So they don't sell anything direct to consumers. If they own the patents on technologies that Sony and Apple and Microsoft want to use, that's going to be profitable, whether the big boys play nice (buying Immersion's products straight up for a steady, spiffy-looking stream of income) or whether they have to be beaten up in court and have their money confiscated for stealing IMMR's intellectual property. Either way, IMMR gets paid.

It's true, I'd like their surgical training device revenues to show more growth than they have, but this is one with a lot more potential than price. And they have a mountain of cash. I just think that's pretty cool.

Adjunctory? That's a pretty sweet word. I wonder what it means. For some reason it made me want to look up BASF and admire their doubling over the last five years.

Moving right along, I thought of a cool (and totally original) slogan for Immersion: "We don't make the video games you buy; we make the video games you buy better. We don't make the smartphones you buy; we make the smartphones you buy better. We don't make med school; we make med school better. At Immersion Corp, we don't make the products you buy. We make the products you buy better."

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