Back in January, mobile-phone software developer Vringo (AMEX:VRNG) looked to be headed for oblivion as its stock price plumbed below the $1 mark. But since then, the company has been on a tear, reaching a high of $5.55 on Thursday before taking a roughly 8% cut in early Friday trading.
What’s got VRNG shares so jumpy?
Well, Vringo got a favorable ruling on a patent battle against Google (NASDAQ:GOOG), AOL (NYSE:AOL), IAC/Interactive (NASDAQ:IACI), Target (NYSE:TGT) and Gannett (NYSE:GCI). A federal district judge quashed a request to throw out its infringement suit, so the case will go to trial on Oct. 16.
Vringo claims it has the core patents — which came from Lycos and Nokia (NYSE:NOK) — that cover the ad model for search engines. Thus, investors think a favorable judgment or settlement could result in billions of dollars injected into VRNG.
That’s important, as Vringo’s main operating business — which focuses on ringtones — is mostly a joke. VRNG’s revenues were just $206,000 for the first half of 2012, representing a 45% decline.
In fact, Vringo, in hopes of capitalizing off its sudden run, pulled off a secondary offering that raised $45 million, putting its total cash-on-hand to more than $55 million. That money certainly will be useful in taking care of the company’s lofty legal costs, though the dilution from the transaction put pressure on Vringo’s stock today.
There’s no question that the Vringo story has become a freak show, but in this case, it’s not one that should wholly be avoided.
Naturally, it’s a big risk. Predicting the outcome of a patent dispute is difficult, to say the least. But so far, Vringo has shown that it has a serious plan, and its patent portfolio seems credible.
In a way, the stock really is an option — one that could see huge upside if Vringo scores a legal victory.
I view the stock as an attractive choice for investors who have a healthy appetite for gambling … but long-term investors have no business in VRNG.
Tom Taulli runs the InvestorPlace blog IPOPlaybook, a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook.” Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.