Monday, October 7, 2013

WiLan Inc

On my other blog I am today writing the retirement age ...continue...

I do not own this stock WiLan Inc. (TSX-WIN, NASDAQ-WILN). I bought this company in 2000, as it was an up and coming company in communications. I sold it in 2006 after losing most of my investment. This stock has never recovered from the bubble that occurred in 2000. I lost all hope of ever making any money on this stock. The other thing is that they completely refocused their company, or completely changed it to earn money on their patents. I like to follow companies I sold so I know what they do in the future.

This company is so different than the one I will review tomorrow, which actually does work for its living. This company basically uses litigation to get other companies to license old patents of WiLan. I do not care for this business model. I think that patent litigation does more harm than good and I personally would not investment currently in a company with this business model. I know that others feel different, but that gives variety to life different investment possibilities to different people.

Another thing I do not like is that I believe that they cannot afford to pay a dividend. You need to earn money and to have positive cash flow to do this. Currently this company has neither. Over the past 10 years, this company has 6 years of negative earnings. The 5 year running average in earnings is -$.01. The company has not had any negative cash flow during the last 5 years, but cash flow is expected to be negative in 2013. Cash flow over the first two quarters of 2013 is negative, so it would appear that the analysts could be right on this.

I cannot get any growth measurements for this company as far as earnings and cash flow go because there are too many years with negative earnings and/or cash flow. I do have 5 and 10 year growth nor 5 year running average growth over the last 5 and 10 years because of this problem.

Revenue has increased over the past 5 and 10 years by 7.5% and 14% per year. However, Revenue per Share over the past 5 and 10 years has declined as has Revenue per Share using the 5 year running averages over the past 5 and 10 years.

Since we are past the hump of 2000 tech bubble, shareholders have had total returns over the past 5 and 10 years of 11.10% and 11.71% per year. The dividend portion of this total return was 1.46% and 0.46% per year over these periods and the capital gains portion was 9.63% and 10.97% per year over these periods.

There are too many negative earnings years to get a fix on historical Price/Earnings Ratios, so I cannot do any stock price check using the P/E Ratios. However, a current P/E of 35 is rather a high P/E based on 2013 earnings of $.11 and a stock price of $4.07. The P/E next year is expected to be just 8.03 based on 2014 earnings of $.48, but analyst also thought that there would be earnings $0.40 for 2012 where there was a $.12 loss.

I get a Graham Price of $2.41 and the Price/Graham Price Ratio of 1.69 on a stock price of $4.07. A P/GP Ratio of 1.69 is high and is also rather high in comparison with the low, median and high median P/GP Ratios of 0.57, 1.16 and 1.77.

The 10 year median Price/Book Value per Share is 2.01 and the current one at 1.79 is some 89% of the 10 year ratio. This stock price suggests that the stock price is reasonable. The Dividend Yield of 3.93% is higher than it has ever been, but since I do not think the dividend is affordable, and therefore at risk, I do not think that a test on the Dividend Yield is appropriate. (I believe the company says the dividend is not at risk, so we should see.)

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. The consensus recommendation would be a Buy. The 12 month stock price is $6.28. This implies total returns of 58.23% with 3.93% from dividends and 54.30% from capital gains. (I do not believe this.)

WiLan settles one lawsuit with HTC Corp according to a September article in the Financial Post. An earlier ruling in the patent litigation processes went against WiLan according to a July article in the Financial Post. The blogger The Apprentice Millionaire is rather upbeat on this stock.

As you may have gathered, I am not upbeat at all about this company. I do not particularly like patent trolls and worse, they do not seem to be able to make a profit. See my spreadsheet at win.htm.

Wi-Lan was founded in 1992 to commercialize technology inventions that made low-cost, high-speed wireless networking a reality. Proven through several generations of products manufactured by Wi-Lan and applied in multiple technology standards, WiLan's inventions were, by 2005, commercialized in millions of wireless networking devices worth many billions of dollars. Realizing the value that its intellectual property brought to industry, Wi-Lan chose in 2006 to focus its business on the development, protection and monetization of patented inventions. Its web site is here WiLan Inc.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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