RPX Corp (RPXC): High Margins and a Nice Cash Stockpile

In any event, RPX’s cash-rich, low-debt balance sheet provides its shareholders with the potential to earn substantial short-term returns. It is important to note that the company’s stock has already risen by more than 20 percent this year on the back of its unexpectedly strong earnings report. However, its favorable cash position suggests that it may have more room to run.

Possible Moves

Assuming that RPX Corp (NASDAQ:RPXC) wishes to deploy some of its cash hoard and reward its shareholders for their continued loyalty, it has several options at its disposal. Management’s most obvious choice might be to initiate a relatively modest quarterly dividend. At RPX’s current share price of about $13, an annual payout of 30 cents per share would produce an annual yield of about 2.3%. A dividend of this magnitude could drive up the stock’s price by 5 or 6 percent over the course of a week.

Alternatively, the company could choose to declare a one-time special dividend. In light of its recent financial performance, such a move could draw more long-term investors into the fold. A one-time cash dividend of $1 per share would cost the company about $50 million and provide shareholders with a quick premium of about 7.7 percent.

It should be noted that RPX is under no obligation to boost its share price. Since touching a 12-month low below $9 per share in late 2012, the company’s stock has risen to nearly $13 per share as of mid-February. However, its management team may well decide to build on this momentum with a modest share buyback that convinces current investors to hold off on any profit-taking. With just over 50 million shares outstanding, the company could use about 30 percent of its liquid reserves to reduce its float by 10 percent at an average cost basis of $13 per share. Depending upon how shareholders receive it, such a move could boost RPX’s share price by 10 to 15 percent within a relatively short time frame.

In sum, RPX Corp (NASDAQ:RPXC) looks to be in an excellent financial position and may provide solid returns for long-term investors. Its short-term cash position looks favorable as well. With no meaningful debt obligations, it appears likely that the company will put some of its cash to work over the coming quarters.

The article High Margins and a Nice Cash Stockpile originally appeared on Fool.com and is written by Mike Thiessen.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.