Wall Street Loves VirnetX. Should You?

Despite all of Wall Street's conflict and contention, a fortunate few companies enjoy unanimous support among professional analysts. If the market's movers and shakers all believe these companies will beat the long-term averages, well, surely they will -- right?

Not so fast! With help from Motley Fool CAPS, the 180,000 member-driven investor community that translates informed opinion into stock ratings of one to five stars, we'll see whether these highflying favorites deserve analysts' unwavering support.

Today we'll take a look at wireless security specialist VirnetX Holdings (ASE: VHC) , which says it's the owner of essential patents related to the security standards for 4G and LTE. Amongst the analysts that CAPS tracks, only two have weighed in so far on the shop that's taking on -- and beating -- the world's top tech giants. Yet the investor community isn't nearly as supportive, with just 56% of those registering their opinion agreeing it will go on to outperform the broad market averages.


VirnetX Holding snapshot

Market Cap

$1.6 billion

Revenues (TTM)

$0.0 million

1-Year Stock Return

37.3%

Return on Investment

(26.7%)

Estimated 5-Year EPS Growth

20%

Dividend and Yield

N/A

Recent Price

$31.05

No. of Analysts

2

CAPS Rating

*

Source: FinViz.com. N/A = not applicable; VirnetX doesn't pay a dividend.

But just because Wall Street loves 'em, that doesn't mean you have to. Analyst sentiment is only just the jumping-off place for your own research.

Hot to trot
Fresh off a win against Apple (NAS: AAPL) for patent infringement, in which a jury awarded it $368 million in damages, VirnetX just filed another lawsuit against it for the latest versions of the iPhone, iPad, and Mac computers, as they weren't included in the last legal tussle.

While there are those who call VirnetX a patent troll, it is starting to license its technology for securing real-time communications over the Internet. VirnetX acquired its patents from SAIC (NYS: SAI) in 2006 and immediately filed a lawsuit against Microsoft (NAS: MSFT) alleging infringement. After a lot of wrangling, Microsoft was found guilty of infringing on the patents and ordered to pay $200 million, at which time it began licensing the technology. NEC (NASDAQOTH: RNECY), in exchange for being removed from a lawsuit, recently agreed to license the technology. VirnetX still has challenges outstanding against Avaya, Cisco (NAS: CSCO) , and Siemens (NYS: SI) ,  and with its track record thus far it seems likely it will be successful with them, too.

Patently absurd?
The investment risk to VirnetX is that it might not be able to extract as much money as it believes is warranted. Despite the win against Apple, it's reported that the amount awarded was about half of what VirnetX was seeking. And then there will be the appeals that will eat into its finances. The lever the patent holder has, though, is that it could seek to block further use of the technology in Apple products, though licensing is the ultimate goal.

The whole mobile-phone sector is enmeshed in a global patent fight with Apple, Samsung, HTC, Motorola, Google (NAS: GOOG) , and others suing each other and everyone else. It's a tangled mess to be sure, but if anyone has momentum in the courts and in the market, it appears to be VirnetX. I've rated the security specialist to outperform the broad market averages on CAPS because of the apparent strength of its claims, and thus far that CAPScall is paying off. VirnetX's shares are up 32% since I weighed in earlier this year, compared with a 1% drop in the S&P 500, but tell me in the comments box below if you think VirnetX Holdings is just getting started or will ultimately get tied up in court.

Agree to disagree
There is absolutely no argument that Apple is at the center of technology's largest revolution ever, and that longtime shareholders have been handsomely rewarded with more than 1,000% gains. However, there is a debate raging as to whether Apple remains a buy. The Motley Fool's senior technology analyst and managing bureau chief, Eric Bleeker, is prepared to fill you in on both reasons to buy and reasons to sell Apple, and what opportunities are left for the company (and, more importantly, your portfolio) going forward. To get instant access to his latest thinking on Apple, simply click here now.

The article Wall Street Loves VirnetX. Should You? originally appeared on Fool.com.

Rich Duprey owns shares of Apple and Cisco Systems. The Motley Fool owns shares of Apple, Google, and Microsoft. Motley Fool newsletter services recommend Apple, Google, and Microsoft. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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