TPS Trade Alert – April 17, 2015
Recommendation:
Buy Finjan Holdings (NASDAQ: FNJN) up to $1.80 per share.
Trade Rationale:
Cybersecurity. It’s one of the biggest issues facing both businesses and consumers as we progress into the 21st century.
Just this week, I had a credit card number stolen from me, mostly likely from an online thief. I had to cancel that account immediately, file a police report, and order a new card.
I’m already going through the tedious process to figure out what bills I pay using that particular card. And I got off easy! I’m sure the retailers where the thief made illegal purchases aren’t going to have such an easy time. Nor will the bank who issued the card.
But that’s nothing compared to what goes on at companies. Businesses, websites, retailers, they’re getting pounded by hackers each and every day. I’m sure you’ve seen some of the highest profile cases where thousands of credit card numbers, personal information, or sensitive materials have been compromised.
Like I said, it’s one of the biggest issues facing modern society. Criminals are becoming more and more sophisticated. And it’s not going to change. Online and mobile is the way of the future.
So what does it all mean?
In a nutshell, it means cybersecurity is going to become one of the most important industries in the world, if it’s not already there. The best technology and the best companies could become tech giants if what they offer helps stem the tide of online theft.
One company which has a bright future in cybersecurity technology is Finjan Holdings (NASDAQ: FNJN).
FNJN develops Web and network cybersecurity technology. The company’s technology allows users to scan and repel the latest and unknown threats to network, Internet, and endpoint security on a real-time basis.
Finjan uses behavior-based threat detection as the basis for its protection software and hardware. The tech proactively protects against the threat of malicious code by identifying risky behaviors.
While FNJN’s products are award winning, what the company mostly focuses on these days is licensing its technology. Finjan has over 40 patents (issued or pending) which expiration dates through 2030.
In many cases, the company has had to use the legal system to protect its patents. Through judgments, settlements, and licenses, the company has collected $150 million already. Plus, there are six more litigations in process.
Basically, the company’s tech is top-notch. But, since there’s so much competition in the field, FNJN often has to use litigation as part of its license negotiation to enforce its patents.
So far, it’s been a highly successful model.
You see, the cybersecurity market provides over $20 billion per year in licensing opportunities. FNJN doesn’t have to win every negotiation in order to make huge profits. Keep in mind, this is an extremely high margin business.
What’s more, the company has $17.5 million in cash compared to zero debt. That means there’s plenty of money to keep the business going while it pursues its negotiations.
Not to mention, insiders hold nearly 80% of the outstanding shares. In other words, these aren’t the type of investors who are going to jump ship. They’re in for the long haul.
Despite the huge cybersecurity market opportunity and FNJN’s impressive patent portfolio, this company is still flying below many investors’ radar screens.
In fact, the shares are trading just 7.5x projected earnings. That’s clearly a bargain price and suggests substantial upside potential. Let’s buy the shares here while they’re trading at such an inexpensive level.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
Company: Finjan Holdings
Ticker: FNJN
Recent Price: $1.64
Buy up to Price: $1.80
Market Cap: $36.9 million
Avg. Daily Volume (3 month): 106,103 shares
Chart:
Category: TPS Trade Alert
