For those of you wondering whether or not I agree with the big plunge today from InterDigital, Inc. (IDCC), I don’t. I think this is completely a case of “buy the rumor, sell the news”. I don’t think it mattered what InterDigital reported last night….the stock was going to sink like a rock simply because the Nov./Jan. rally left too much profit potential on the table. The slight breakdown in February, and yesterday to be specific (IDCC closed under that key 50 day moving average line), was the hint of today’s reaction.

More importantly, what’s next? Is InterDigital really the piece of crap the market is saying it is? I don’t think so, but I’ll let you decide for yourself.

In Q4…

• Revenue increased from $54.9 million to $58.7 million (+6.9%)
• Income improved from a loss of $2.0 million to earnings of $3.8 million (technically, +195%)

For the full year…

• Revenue fell from $234.2 million to $228.5 million (-2.4%)
• Income increased from $20.0 million to $26.2 million (+31.0%)

Looking ahead to Q1 of 2009 and beyond….

• InterDigital is looking for revenues between $69 million and $71 million

As of right now…

• The twelve-month P/E is 44.6, while the forward-looking P/E is 15.4 (based on analyst estimates).

So what went wrong today? Like I said above, I think this (the dip after the news) was going to happen no matter what. However, there are a couple of things that didn’t quite meet expectations…. like Q4 earnings. The market expected 16 cents per share, but it only got 9 cents per share. And, though it shouldn’t have been a surprise, investors didn’t care for the slight dip in revenue, even though it had already been logged in the first three quarters of the year (Q4’s revenue actually helped offset the dip).

Unfortunately, the company was trapped by someone else’s unrealistic expectations, and the stock was the victim.

At this point there’s not much benefit in getting out. Besides, I really do think IDCC is undervalued here. It may take a while to reclaim appropriate levels (though a dead-cat bounce should give it a quick start). But a P/E of 15 for a company that’s growing the bottom line nicely? Factor in the bullish effect today’s bearish gap could have too. If I couldn’t find any other opportunities, I’d certainly be willing to take this one.

Besides, there’s some chatter from the company’s management about selling the business. The market didn’t seem to like it initially, but I think that would actually be a great thing. That’s still well down the road though, and may not help get the short-term bullish ball rolling anytime soon.

Let’s see if the sentiment is this bearish tomorrow. I don’t know how it could be, but if it is - and if it looks like nobody else cares about IDCC’s projected valuation - there’s no need to be stubborn.

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