While InterDigital, Inc. (NASDAQ:IDCC) might not have the largest market cap around , it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$117 at one point, and dropping to the lows of US$95.66. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether InterDigital's current trading price of US$95.66 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let's take a look at InterDigital's outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
Is InterDigital Still Cheap?
Great news for investors – InterDigital is still trading at a fairly cheap price according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we've used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock's cash flows. we find that InterDigital's ratio of 11.39x is below its peer average of 42.01x, which indicates the stock is trading at a lower price compared to the Software industry. Although, there may be another chance to buy again in the future. This is because InterDigital's beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company's shares will likely fall by more than the rest of the market, providing a prime buying opportunity.
What kind of growth will InterDigital generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it's the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an extremely negative double-digit change in profit expected over the next couple of years, near-term growth is certainly not a driver of a buy decision. It seems like high uncertainty is on the cards for InterDigital, at least in the near future.
What This Means For You
Are you a shareholder? Although IDCC is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. We recommend you think about whether you want to increase your portfolio exposure to IDCC, or whether diversifying into another stock may be a better move for your total risk and return.
Are you a potential investor? If you've been keeping an eye on IDCC for a while, but hesitant on making the leap, we recommend you dig deeper into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.
So while earnings quality is important, it's equally important to consider the risks facing InterDigital at this point in time. In terms of investment risks, we've identified 2 warning signs with InterDigital, and understanding them should be part of your investment process.
If you are no longer interested in InterDigital, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.