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Haptic feedback, the vibrations when interacting with specific hardware, is used across various applications, from mobile phones to buttons on a vehicle's steering wheel. Interestingly, one company dominates this space: Immersion (IMMR), which most recently sits at #10 on our Value Leaders Rankings.

IMMR has been in the haptic technology space since the 1990s, which, given this history, has allowed it to command over 1,200 issued or pending patents globally as of FY22. Provided the breadth of its patent portfolio, IMMR has made sure to defend against the myriad of tech giants looking to circumvent these patents over the years, winning suits against huge names like Sony (SONY), Apple (AAPL), and Microsoft (MSFT). Most recently, last year, IMMR filed a complaint against Meta Platforms (META), alleging that its AR/VR systems infringed on six IMMR patents.

Outside the courtroom, IMMR boasts strong fundamentals, a healthy balance sheet, and increasingly popular technology, making its valuation of 13x forward earnings look quite attractive.

• Although revenue has been somewhat stagnant over the past couple of years, holding steady at around $30-40 mln, future catalysts could kickstart growth. One example is within the automotive industry, where computer systems and technology are proliferating. Alongside most physical buttons being replaced by touch-sensitive dials, which incorporate haptic feedback, advanced driver assistance systems (ADAS) are becoming standard safety features, all of which utilize haptic feedback to alert drivers of potential hazards.
  • Meanwhile, with haptics being used across numerous fields, like robotics, gaming peripherals, internet-of-things (IoT) devices, and medical equipment, IMMR is potentially amid multiple tailwinds that could help accelerate its top-line.
• Being a company that boasts such a robust patent portfolio that has already had to battle colossal tech names over infringement, it would not be surprising to find one of these tech firms buy out IMMR, especially given its healthy financials. For example, IMMR's long-term debt-to-equity multiple is 0%, as the company has virtually no debt on its books. This is uncommon amongst small-cap firms, especially given how long interest rates sat at rock-bottom levels.
• It is also worth pointing out that IMMR recently implemented a dividend, providing $0.13 per share in Q1 and $0.03 in Q2. Additionally, IMMR has $50 mln remaining under its share buyback authorization.

Still, risks remain. IMMR is not pouring much into R&D anymore, seeing its total spending plummet 67% yr/yr to $1.4 mln in FY22, meaning that the company is almost entirely dependent on its current patent portfolio. Patents also expire, typically 17 years from the date of issuance in the U.S. After increasing its patent count to over 3,400 at the end of FY18, IMMR held around 3,200 issued or pending patents one year later. This number was sliced in half two years after that, dropping to just 1,200 by the end of FY22.

Still, given the pace at which tech evolves, companies cannot wait for patents to expire. Also, given IMMR's track record in court, it would be surprising to see it lose future lawsuits. Bottom line, although the stoppage of R&D concerns long-term growth, IMMR offers a compelling play on the increasing popularity of haptic technology over the medium term.