InterDigital, Inc. (IDCC) is a global leader in research and development, focusing on cutting-edge wireless, video, and AI technologies. The company’s innovations drive communications and entertainment products, which it licenses to businesses worldwide. Although IDCC isn’t one of the largest players by market cap, its stock has seen significant price fluctuations, reaching a 52-week high of $140.60 before dipping to a low of $74.65.
Such price swings allow investors to buy into the stock at a more attractive entry point. Over the past year, IDCC shares have gained 62.1%, and they’re up 20.9% year-to-date, closing the last trading session at $131.25.
Investing in a strong company with solid growth prospects at a discounted price is always appealing. Street expects IDCC’s EPS and revenue for the current year (ending December 2024) to increase 13.6% and 30.4% year-over-year to $10.48 and $716.69 million, respectively.
Moreover, the company has consistently outperformed Wall Street’s expectations. For the second quarter, IDCC’s earnings per share was $4.57, far above the consensus estimate of $0.74, while its revenue exceeded the analysts’ estimates by $123.82 million. It is no surprise that IDCC’s strong earnings have topped the EPS estimates in each of the trailing four quarters.
In view of the above, is IDCC a bargain buy? Let’s take a deeper look at its fundamental factors:
Strong Financials
For the fiscal second quarter (ended June 30, 2024), IDCC’s revenues grew by triple digits (120% year-over-year) to a record of $223.49 million. Income from operations also saw a substantial uptick, from $23.38 million last year to $133.91 million.
The company’s adjusted EBITDA rose 194.5% from the prior-year quarter to $157.74 million. Likewise, its non-GAAP net income amounted to $118.90 million compared with $35.63 million in the year-ago quarter. In addition, its non-GAAP earnings per share of $4.57 improved considerably from the year-ago value of $1.30.
Impressive Historical Growth
Over the past three years, IDCC’s revenue and EBITDA increased at a CAGR of 28.1% and 48.2%, respectively. Its EBIT grew at a 98.9% CAGR during the period. Moreover, the company’s net income rose at an impressive 111% CAGR over the same time frame.
Lower-Than-Industry Valuation
In terms of forward non-GAAP P/E, IDCC is currently trading at 12.44x, 45.6% lower than the industry average of 22.85x. Similarly, the stock’s forward non-GAAP PEG and EV/EBITDA multiples of 0.91 and 7.64 are 48.9% and 44.5% lower than the industry averages of 1.79x and 13.77x, respectively. Additionally, the stock’s 10.54x forward EV/EBIT is 43.7% lower than the industry average of 18.73x.
Robust Profitability
IDCC’s trailing-12-month levered FCF margin of 29.69% is 187.9% higher than the 10.31% industry average. Its 53.65% trailing-12-month EBITDA margin is 431.8% above the 10.09% industry average. Furthermore, the stock’s trailing-12-month net income margin, ROCE, and ROTC of 37.99%, 43.09%, and 16.56% compares favorably to their respective industry averages of 3.66%, 4.52%, and 2.72%.
POWR Ratings Exhibit Solid Prospects
IDCC’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. IDCC also has a B grade for Value, which syncs with its discounted valuation. Moreover, its high profit margins justify the stock’s B grade for Quality.
Within the Telecom - Domestic industry, IDCC is ranked #7 out of the 18 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth, Momentum, Stability, and Sentiment. Get all IDCC ratings here.
Bottom Line
InterDigital closed the quarter with a strong cash position of $760.34 million, providing ample financial flexibility to invest in growth opportunities and execute strategic initiatives. Following its impressive second-quarter results and growing business momentum, the company raised its full-year revenue guidance by $70 million, now projecting between $690 million and $740 million.
Adjusted EBITDA is expected to rise to between $378 million and $416 million, up from the previous forecast of $310 million to $345 million, while non-GAAP EPS is projected in the range of $9.70 to $10.95.
Given robust financials, growing profitability, and discounted valuations, it could be a wise investment choice for those looking for value in the wireless tech space.
How Does InterDigital, Inc. (IDCC) Stack Up Against Its Peers?
While IDCC has an overall grade of B, equating to a Buy rating, you may also check out these other stocks within the Telecom - Domestic industry: IDT Corporation (IDT), Spok Holdings, Inc. (SPOK), and T-Mobile US, Inc. (TMUS), carrying A (Strong Buy) or B (Buy) ratings. To explore more Telecom - Domestic stocks, click here.
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IDCC shares were trading at $132.13 per share on Wednesday afternoon, up $0.88 (+0.67%). Year-to-date, IDCC has gained 23.11%, versus a 15.91% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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