Could the Strength of a Company's Patents Decide Its Stock Worth?
The secret of success in stock trading is, well, pretty basic – knowing when to buy or sell a stock.Experience Helps in Looking for the Right Things in a Stock
While buying a stock, there are various factors to consider. Experienced stock traders and investors know what to look for and where to look for it. People new to the stock market could jump for headline news and buy those stocks which on hindsight would probably not have been the right choice. That's where advanced trading software helps, giving true objective opinion of the stock in the wider picture of the market. And the opinions of experienced analysts and investors matter too.
Investors seem to have a bullish opinion on Google's parent company Alphabet ($GOOG, $GOOGL). So it's worthwhile to check out what fuels their opinion.Google Rests on the Strength of its Innovation
Jamal Carnette of Motley Fool believes there are a million reasons to want to buy Google. To start with, Carnette points to the technological prowess of the tech giant, quoting CB Insights data suggesting that Google has filed 14,596 patent applications in the short period from 2009 to 2016.
Alphabet isn't devoid of criticism though. Investors have found fault in the company's unrestrained spending on side businesses. Alphabet has referred to this spending as "moonshots". These are reported in Google's other bets businesses. Examples are Fiber and Verily. However, with a new CFO in charge, the company has cut down its expenses in the other bets segment. And, in spite of the 50% higher revenue reported by the company it was faced with an operating loss of $812 million in this other bets segment, which was a 5.7% decrease from the previous year.
Carnette reminds that taking risks strategically on innovation has always been Alphabet's policy, which isn't always shown in the spending alone. Back in 2004, the company claimed that it encouraged employees to spend 20% of their time to think of new products to come up with, with Google News and Gmail being the results.Expenses on Innovation Can't Be Judged from Financial Statements
Carnette considers the difference between purchasing a physical asset such as a machine or building, and investing in innovation. Physical assets get recorded at purchase price on the balance sheet and they are depreciated over a period that's predetermined. When it comes to developing patents though, the internal costs get recorded as expenses that have occurred and show up as research and development on the income statement. So physical assets appear better suited, in terms of revenue and value, to the income statement. That's why it's hard to analyze the benefits of any innovation made by merely observing the financial statements. It's hard to figure out which of the patents will be successful and which would be failures.Alphabet Has Been Successful with Innovations
Carnette therefore argues that expenses made for patents cannot be immediately seen as wasted money since you can never tell how groundbreaking and high earning that innovation would end up being. When it comes to Alphabet, the company has been successful at monetizing new patented technologies in the past decade. The company can therefore be trusted to continue developing successful patents that could ensure its top line keeps growing in the coming years.
By the strength of those patents alone, Carnette believes that Alphabet is worth buying. Now that should you give some idea of the factors to consider in a stock. For more enlightenment in stock trading, TradeZero offers you advanced trading software. Get in touch with us at +1 954-944-3885, or email email@example.com.
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