By: Sam Mattera
Shares of VirnetX (NYSE: VHC) experienced a strong rally on Wednesday after a jury ruled that tech giant Apple (NASDAQ: AAPL) must pay the company damages totalling $368.2 million.
VirnetX was up as much as 20 percent, broadly outperforming the market. As VirnetX surged, most other stocks sold off, with the Dow dropping 300 points in early trading on Wednesday.
(How much money can Apple burn through before feeling the pinch?)
VirnetX has been a contentious stock in recent months, as shares have moved on speculation over the likelihood of the company's legal success. Although VirnetX claims to be a tech company, many investors have found value only in the company's patent portfolio.
The damages awarded from Apple come just two years after the company won a case with Microsoft (NASDAQ: MSFT) in 2010.
In its case with Apple, VirnetX alleged that Apple's implementation of its FaceTime feature, which allows users to chat face-to-face using the iPhone's front-facing camera, violated the VirnetX's intellectual property. The jury agreed.
Is there more upside from here? Possibly.
(Could this settlement have made Vringo too volatile?)
Although VirnetX is not widely covered, the few analysts who do are positive on the stock. Analysts at Gilford Securities maintain a price target of $65, while those at Dawson James Securities have a $35 price target. With wins over Microsoft and Apple, VirnetX might be able to use its patents to target other tech giants in the near future.
However, anyone considering getting involved in VirnetX should be highly cautious. The stock has undergone significant swings, as investor sentiment has shifted around the perceived likelihood of a positive legal outcome. At one point, in July, shares were trading over $40. Yet in March, shares were close to only $20.
When asked about his thoughts on VirnetX, CNBC's Jim Cramer suggested that bulls play the company with deep, out of the money calls. That might be a prudent strategy.
