Unlocking Hidden Value

Originally Published June 2000Christopher Sweeney

Among the frustrations faced by executives at publicly traded companies is seeing the market fail to fully value all the pieces of a firm's business. A surge in the value of some types of business relative to others often leads to a perception of mispricing. Witness the tendency of Internet and biotechnology stocks to fall in and out of favor with investors. At other times, a shift in market sentiment occurs when analysts change the metrics used to evaluate a company's prospects.

One example of this imbalance is the relative values of companies engaged in Internet-based device distribution and their asset-based competitors. Investors have chosen to use a different set of tools to value the Internet-based device marketers than they apply to asset-based companies that produce many times the revenues of on-line firms.