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Bear of the Day: Acacia Research (ACTG)

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Acacia Research (ACTG - Free Report) has consistently been a Zacks #4 Rank (Sell) or #5 Rank (Strong Sell) for most of the past four years. I have chosen the name for Bear of the Day numerous times in this period to warn investors that their money was better off somewhere else.

In January of 2016, I wrote "The stock has fallen from $30 to new 7-year lows this month under $4." And the driving theme of falling shares was consistent quarter after quarter: analysts were forced to lower EPS estimates as the fundamentals deteriorated.

After a 2016 earnings recovery where shares climbed back above $7.50, they are making new lows under $4 this week, and back to the Zacks Rank cellar.

Is There Opportunity Now?

Here's what I wrote on May 26 when I featured Acacia as the Bear of the Day...

Not only is the company poised to deliver a big double-digit earnings decline from last year's $0.45 profit, but the 2017 full-year consensus has declined in the past 30 days from $0.19 to $0.15.

Part of the problem too is that so few analysts are even providing estimates for this company anymore. In fact, 2018 estimates have only recently been established and by only a single analyst who is calling for a rise in profitability to $0.28 on the year.

This low visibility is reflected in the company's last earnings "surprise" which was negative and sizable. ACTG delivered a loss of 13-cents when the consensus expectation was a profit of 1-cent.

(end of May 26 excerpt)

Guess what? The earnings decline has gotten worse. After another big earnings miss, the 2017 EPS estimate has fallen to -$0.05 this week, projecting -111% annual "growth."

And full-year revenue estimates have dropped to $75 million, for a decline of over -50% annually.

A Business Model In Decline?

Acacia Research Corporation, through its subsidiaries, develops, acquires, and licenses patented technologies. It assists patent owners with the prosecution and development of their patent portfolios, protection of their patented inventions from unauthorized use, generation of licensing revenue from users of their patented technologies and enforcement against unauthorized users of their patented technologies.

For years, the fluctuation in their earnings was blamed on the nature of the business model where patent protection fees and litigation wins and costs were so variable. But the overall trend has still been one way: down.

For these reasons, ACTG has been a terrific short position for several years. When the Zacks Rank locks on to a consistent earnings decliner, the shorts don't let go.

So, until this earnings evaporation stops and reverses, it's probably best to keep this portfolio of patents out of yours.

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