Trying to accurately value a biotech stock isn't just difficult -- sometimes it seems downright worthless. After all, how can investors even try to value a company that hasn't booked a dollar in revenue?

In the following video, Brenton Flynn walks through a commonly used method for valuing biotech stocks and offers a word of caution for investors in companies like Arena Pharmaceuticals , Threshold Pharmaceuticals , and Pharmacyclics , which are waiting on lucrative milestone payments.


Is Arena's reward worth the risk?
With Belviq's FDA approval now a distant memory, investors are scrambling to decide whether to buy or sell Arena. In the Fool's premium research report, senior biotech analyst Brian Orelli takes you through a comprehensive look at this contentious stock, including its massive opportunity, potential pitfalls, and key reasons to both buy and sell. To find out more about Arena -- and get a full year of updates -- click here to access your report today.

The article Biotech Investors: Please Don't Make This Mistake originally appeared on Fool.com.

Brenton Flynn has no position in any stocks mentioned. The Motley Fool recommends Johnson & Johnson. The Motley Fool owns shares of Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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