Valuing Intangibles – Why bother!
I posted the following on a message board in reply to how best to value Biota (BTA.AX).
Apologies for the slow reply to your question “Perhaps option pricing would be better for BTA.“
The linked paper provides an academic answer to your question. Professor Damodaran does suggest an option pricing model for patents and similar intangibles with possible future cash flows. From page 25 on he runs through an example using Avonex.
Dealing with Intangibles: Valuing Brand Names, Flexibility and Patents by Aswath Damodaran
I find this detailed approach to valuation of intellectual interest, but not of great investing interest. As a retail investor why bother going to such detailed valuation effort? Opportunities like buying Biota at cash backing come around often enough to make such detailed valuation almost unnecessary. I try to wait for the easy pitches, though still swing to often. If I have to value a company using option pricing then I know I don’t have large enough margin of safety.
If I had to value Biota for corporate reasons or as an analyst then I’d use a combination of DCF for the known cash flows and a mix of options pricing and relative valuation for the other intangibles.
Valuation is an important art, but I like to spend more time standing back and looking at the clock than diving in so deep that I no longer know what I’m looking at.
Related posts:
Leave your response!