InterDigital Soars - What You Need To Know

| About: InterDigital, Inc. (IDCC)
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Shares of InterDigital Inc (NASDAQ:IDCC) soared mid-way through the trading session on Monday following a flurry of positive news.

IDCC ChartIDCC data by YCharts

Patent Sale

IDCC announced the sale of roughly 1,700 patents and patent applications to Intel (NASDAQ:INTC) for $375 million. Considering that IDCC is a company with a market cap of just over $1 billion, this deal is very meaningful and probably responsible for most of the move higher in the stock. However, the patent sale was not the only good news for IDCC shareholders on Monday.

Buyback Increase

IDCC also announced a $100 million increase in the share repurchase program from $100 million to $200 million. Again, considering the size of IDCC, just over $1 billion in equity, this move is very meaningful.

Short Interest

Prior to Monday, short interest was roughly 7.37 million shares or 16.5% of the float. Some of the buying Monday was likely short covering, but it is also likely that a large short interest remains. The short interest may serve as a catalyst for further gains in IDCC.

My Take

Due to the massive move higher, and spike in volume (as I write this IDCC has traded over 8x average volume), I believe IDCC needs to consolidate for some time. While consolidation does not necessarily mean a pull-back, it does mean further gains in the short-term are unlikely. However, I do believe IDCC has an interesting business model for the long-term. The company has proved it is capable of coming up with valuable new patents over time, and I expect the company will use proceeds from the sale to Intel to come up with patents that will have value in the future. In my opinion, investors who are in IDCC for the long-term should hold on to shares while those on the sidelines should look to buy on a pullback.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.