- Netlist revenue grew 236.9% Y/Y.
- Netlist is in the midst of what may be the largest patent infringement lawsuit in history.
- Netlist continues to establish itself as more than a lawsuit.
I give a Strong Buy rating to Netlist (OTCQB:NLST) because of its potential to create history. Very few opportunities like Netlist present themselves to the average citizen in a lifetime. Because Netlist is a small company that is traded OTC (AKA Penny Stock), many investors and institutions will not touch it, allowing investors to invest in a much more favorable investment.
Netlist is a technology company based in Irvine, California, that primarily produces SSD and memory technology. The company has a broad patent portfolio and has multiple lawsuits over its patents and their usage. The potential windfall of these cases is in the billions of dollars and, when concluded, would more than double the current market capitalization overnight.
As of the last SEC filing, Netlist has cash, cash equivalents, restricted cash of $58.3M, and total debt of $5.1 million. While funding the expensive lawsuits necessary to bring the many infringers to tax, the company currently loses about $5.8 million per quarter (a number that is shrinking as the company grows), resulting in GAAP EPS of -0.03. Netlist has a total share count of roughly 230 million shares outstanding.
Briefly touching on the performance of the stock.
The company was quickly approaching being bankrupt in 2020 until a patent validation saved its share price. Since then, multiple catalysts have occurred around the company's patent litigation which has continued to propel the stock higher and higher while resetting the stock's floor. The stock trades atypical to the market because it mainly moves on news from its court cases. I, however, think this overlooks the solid underlying business. Netlist is a rapidly growing tech company outside of its litigation.
On May 2nd, 2022, Netlist had its quarterly earnings call, and it went fantastic. The highlight is the revenue of $50.2 million which represents 236.9% Y/Y growth. Q4 of 2021 was a solid financial quarter, and we see that Q1 of 2022 continues this trend. For this reason, I would expect the company's revenue to continue to multiply. Additionally, suppose the company settles some of its lawsuits. In that case, they will most likely end with some sort of licensing deal for Netlist technology which will continue to help its revenue snowball.
I will summarize the ongoing litigation below shortly, but I will link my previous articles and interviews on Netlist for more information. Most recently, I wrote an article on Netlists promising case against Google(GOOG)(GOOGL). Before that, I wrote a summary of what happened in the Samsung (OTCPK:SSNLF) case from a few months ago and an overview of the Google case. I also did an interview on YouTube after the Samsung case. The piece I wrote the last time the Google court case was pushed back. I did another interview on YouTube on the voided contract from Samsung. My original outlook on the Samsung case and the void of contract that created it. I did a broad interview on YouTube about the company. My original broad summary of Netlist's litigation.
To summarize the litigation, Netlist is in litigation primarily with three companies: Micron, Google, and Samsung. All of these lawsuits are big, and winning any of them will set the company in a great financial position moving forward that would inject the company with cash and give them ongoing revenue from a licensing deal; however, the Lawsuit against Google, I believe has the potential to be the largest patent infringement lawsuit in history which would mean it would be over $2 Billion. At the very least, I think that the combination of the company's lawsuits could result in the largest patent infringement lawsuit in history.
No significant updates have happened in any of the company's cases since my last article, and I will be sure to write an article upon any significant news dropping.
Netlist faces two main risks outside of general market risks. The first is that the company fails to win its lawsuits. This is a genuine possibility and would result in a major short-term reaction to the stock price. However, as mentioned in this article, the company is a rapidly growing tech company outside of its lawsuits which I believe will allow it to bounce back from any loss in value. The second issue is that the technology side of the company has a tiny market share in a very competitive field. While a small market share means there is a lot of room for growth, it also means the company is in an easier position to be pushed around (as alleged in its lawsuits).
The whole market dropping has led to many great buying opportunities and has caused many investors to be less excited about investing in a higher-risk company like Netlist. However, even with the deals across the stock market, I still believe that Netlist is an excellent buy. The company is a rapidly growing tech company that is in the midst of what may be the most significant patent infringement lawsuit in history. While the journey is never smooth, I think next year will be fascinating for all Netlist shareholders.
This article was written by
Analyst’s Disclosure: I/we have a beneficial long position in the shares of NLST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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