One of the most distinctive features of IOI’s approach to valuation is that of the “valuation range.” Point estimates of value (e.g., “target price,” “fair value estimate”) – which are widely used by professional investors and analysts – trigger behavioral biases that make it harder to objectively assess information and ultimately, to make poor investment decisions. Using a scenario-based valuation range allows intelligent investors to sidestep those behavioral biases and make better, more informed investment choices.
Ranges are generated by looking at the combinations of the key drivers of value at a firm:
- Revenue growth
- Profitability
- Investment level and efficacy, which are tied to short-term cash flow and medium-term growth, respectively
This “Valuation Waterfall” for biotech giant Gilead Sciences (GILD) summarizes the valuation we published to our members in September, 2016. To read the full report, please consider becoming an IOI member on a trial basis!
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