Introduction
I give a Strong Buy rating to Netlist (OTCQB:NLST) because of its potential to create history. Very few opportunities like the one that Netlist offers present themselves to the average citizen in a lifetime.
Netlist is traded OTC (Over-The-Counter), which only makes it accessible to investors who do business with specific brokerages. For example, the newer wave of investors on apps such as Robinhood (HOOD) cannot purchase shares. OTC stocks (AKA pink sheets) are generally considered extremely risky investments, and investors should not jump into the fray unless they have a good reason to do so. I agree with this sentiment, but Netlist is not your ordinary penny stock. In that regard, Netlist is my "diamond in the rough."
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 their 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.
Financials
The stock is currently listed OTC after being delisted from the NASDAQ a few years ago, where the stock subsequently fell to less than $.20. The stock has a share price of $4.98 and a market cap of $1.1 Billion. As of the last SEC filing, Netlist has $99 million in cash and assets and $51 million in liabilities. While funding the expensive lawsuits necessary to bring the many infringers to tax, the company currently loses about $10 million per quarter. Netlist has a total share count of roughly 230 million shares outstanding.
Summary
The only place I will touch on my core investment thesis is right here in this section. I will shortly summarize it below, but I will link my previous articles and interviews on Netlist for more information. A summary of what happened in the Samsung (OTC:SSNLF) case from a few months ago and an overview of the Google (GOOG) (NASDAQ:GOOGL) 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. I have been following the company for over five years, with the last two being closely, and have only recently started publicizing my thoughts. For more information or to stay up to date with a continuous stream of current knowledge, I recommend finding a message board to follow. Many have very informed investors, and I cannot write an update every time a court case piece comes out.
I believe the Google case can end up being the largest patent infringement award in history. Back in 2009, Netlist sued Google, claiming that Google was building servers with their technology. As Agni Research wrote, "The judge in the case ordered a random cross-section of servers to be examined which showed that Google indeed was using technology described in the '912 patent." Google was caught red-handed using the technology. This case has a significant upcoming catalyst on Claim 16 seeking Partial Summary Judgement (PSJ) on intervening rights. This case has been delayed twice now. Both delays affected the stock price, but the most recent one was the cause of the recent drop.
What Just Happened?
In the past two weeks, we saw the stock go from $6 to $3.30, which accounts for an almost 50% fall, and then go from those lows to the low $5s, including being up 48% in one day. At the time of this writing, the stock is trading at $4.98. Yes, this stock is a penny stock, but it has a market cap of $1.1 Billion. Netlist is not your average penny stock and should therefore not be moving like your average penny stock. It is easy to speculate on why this happened, but I will stick to things I know.
The one-month chart is listed below to show the crazy stock movement.
Netlist was scheduled to have a motion hearing on Claim 16 in its case versus Google on January 12th. This hearing would have determined whether Google is liable for infringement on the '912 patent going back in time (Claim 16). This one hearing is worth billions of dollars. Leading up to this date, investors were closely monitoring the case, and then out of nowhere, a motion to vacate the hearing occurred. Nobody knew why this happened, and plenty of speculation ran rampant. Even today, to the best of my knowledge, the reason has not been publicly released.
After this, all the uncertainty and the slaughtering of the broad markets led the stock to start to fall and once it started to fall it continued to fall. While the slow fall was happening, Netlist's Attorney Jason Sheasby filed to transfer the court case, killing off most of the speculation and leading investors to see it was just another delay in the court case. After this event, the rapid fall of the stock occurred. Finally, it came out a few days ago that the case was being rescheduled to February 24th. Everything about this stock is the same as it was in December and January. Simply, timelines have been pushed back. The rescheduling erased a lot of uncertainty in the stock. Additionally, the case was rescheduled to a much closer date than the last time it was rescheduled. On the downside, the overall market environment has severely soured since the original hearing and even the first rescheduled hearing.
As mentioned above, I recommend following a message board for this stock for more up-to-date information. Because the company is involved in so many court cases, important dates are always showing up and are constantly changing; it can be challenging to keep up.
Risks
One risk is that the general market does not look very favorable. It appears as if we are entering a bear market, and if this is the case, investors' return expectations should be lowered for all stocks. Specific to this stock, the company's value is heavily based on the decision of one court case. Massive percentage gains or losses will be created because of the result of the claim 16 hearing, and as a result, this case and it not going in an investor's favor is a considerable risk for the investor to take on.
Conclusion
This stock has the same outlook as it did in December and January. It is a high risk/high reward investment play into a company that is in the midst of what may become the biggest patent infringement lawsuit in history. I am not a financial advisor, so make sure you do your due diligence and find your conviction to withstand the possible volatility. If you decide to invest, welcome to the Netlist casino! Just remember, not everyone is going to walk away a winner.
