RMBS (probabilities)

The good news is that RMBS's share price is holding up relatively well given yet another (slight) delay. RMBS's antitrust case against the "cartel" was set to start earlier in the week -- and surprise (!!) -- at the last second, we learn that one of the cartel lawyers is very sick. Here's Bloomberg's blurb on Rambus.

Note that this isn't much of a surprise because the same thing happened just a few months ago! Back then, Rambus' case was delayed due to the health of a cartel lawyer -- which pushed the trial closer to the holidays -- so the court decided to postpone the case until early January. This time, the judge delayed things for eight days to decide what to do next...

A few notes on Rambus:

• Based on the reaction of the share price, we feel that Rambus is holding up fairly well.
• Overall, we believe the price hanging tight at 20-21 is "good news" because on a "contrarian" level, the level of negativity by longer-term RMBS shareholders seems to be on the high end. That is, with all of the negativity, for RMBS to go from 23-24 down to 20-21 is a good sign.
• On the other hand, some RMBS investors and regular message board "posters" have said that "not much has changed" -- and that people need to hang tight and await the "reward."
• We are overall happy that the share price is hanging tough with the slight delay and negativity. In fact, this level in the 20-21 range will hopefully develop into long-term support in the future.

What does the market say? We used a "back of the envelope" method to value/price a few scenarios that include the range of possibilities (including solid business solution, and bad conclusions for Rambus). We wanted to estimate the probabilities that the market is pricing in -- for various scenarios in RMBS's future. What do the numbers say?

• Several months ago, Rambus was hovering in the mid-teens. At this stock price, the market was signaling about a 20% chance of a good conclusion/business solution for RMBS.
• When the stock was hovering at about 24, just below resistance in the 24.5 to 26 range, this percentage was more like 40%
• Since the mini-delay -- as we await the judge's decision next Thursday, the stock has dropped to the 21 range -- and the percentage has dropped correspondingly to about 35%.

The price action seems to make some sense -- and we hope that justice will be served -- sooner rather than later. We continue to believe that Rambus has good potential as a "flyer" for aggressive investors -- and most "longs" will agree that they are happier at 21 than they were at 16.