Valuation of Internet and
Technology Stocks Implications for Investment Analysis
Brian Kettell
Policy Advisor, Bahrain Monetary Agency.
- Investigates
why there has been a high correlation between high loss companies and a rocketing stock
price
- Questions
whether there is still a place for discounted cash flows when there is no cash flow to
discount
- Considers
what new methods are available to value super growth companies and whether these methods
are any better than existing techniques
The challenge for
institutional stock market investors is to identify value ahead of the competitors thereby
enabling them to buy stocks when they are undervalued. The difficulty for current
investors is that existing valuation techniques no longer work. During 2000 Internet
entrepreneurs succeeded in quickly transforming their business ideas into billion-dollar
valuations that seemed to defy common wisdom about profits, multiples and the short-term
focus of capital markets. The fact that so many of these valuations were subsequently
reversed toward the year end and into 2001 means that the problems of valuing these
companies will not disappear. Valuing these high growth, high risk, high loss firms is a
challenge to existing corporate valuation rules.
New ways of looking,
researching and valuing these companies need to be addressed. 'Valuation of Internet and
Technology Stocks' offers practical information to enable institutional investors to value
internet.coms and high tech companies more accurately.
The author highlights the deficiencies in existing stock market techniques and shows how
they need to be modified or, in most cases, replaced with techniques more suited for the
revolution in economies which had taken place since 1991. The economic rules in the
financial market place have changed to the extent that strategies successfully applied in
the post war era have now been relegated to the deleted items box. 'Valuation on Internet
and Technology Stocks' reviews existing stock market techniques highlighting their
deficiencies and show how the New Economics necessitates new forms of investment analysis.
Contents
Preface: the collapse of
technology/Internet stocks; The age of information and the democratization of data; The
new economy: where do technology/Internet stocks fit in?; Technology and the Internet
Economy: what made it all happen?; How do you value traditional common stocks?; Applying
the Porter Model to the valuation of technology/Internet stocks; What are the problems
with applying traditional valuation models for Technology/Internet stocks?; Bubblelogy,
stock market and the technology/Internet stock price collapse; What do we know about the
valuation of technology/Internet stocks (I)?; What do we know about the valuation of
technology/Internet stocks (II)?; Derivative markets, real options and the valuation of
technology/Internet stocks; What are the lessons for investors from the year 2000 collapse
of technology/Internet stocks?; Bibliography and web site addresses.
Readership: Traders;
Investment Managers; Institutional Investors; Plan Managers; Finance Professionals.
206 pages