Comparison is the essential valuation activity

Readers familiar with our work may want to skip to the "Comparing Details" section below.

Advances in Genome understanding and prospective adjustments continue at a startling pace. Equity investments provide a means of maintaining perspective and other SA contributors help with the industry development details.

This article rewards investors who choose to direct their investments of TIME and capital to those alternatives with the highest likelihood of successful rates of return among ones compared under identical important measures.

Now, Editas Medicine (EDIT) provides attractive answers to these questions:

These are questions often neither asked nor answered by many investment analysis reports. The commonplace approach is to present those aspects of one investment which may set it apart from others, but fail to make the essential decision-supporting step of comparing alternatives on an equal-measure basis.

Instead of limiting a value-search to industry competitors, our focus is on the alternatives which may address the investor's objectives of his investing mission, not necessarily of a stock candidate's competitive industry concerns.

To that end we turn to an information expert on what is currently of importance to investors - YAHOO Finance - and what also diverts the attention of investors initially interested in the stock of Editas Medicine. From its website traffic records Yahoo lists five other stocks "People also watch." They are NTLA, SGMO, BLUE, ONCE, and CLLS.

With the alternative investment choices in hand, we then turn to folks involved every market day with making bets (usually big bets) about how far their prices are likely to get pushed - both up and down. Those price limits are defined in the choices they make in the way they will protect their capital which must be exposed to market risk as they conduct their every-day market-making activities in large-volume "block trade" transactions.

Price range forecasts are being made in separate hedging deals over time periods defined by the contract lives of the derivative securities involved. Those judgments contain the updated "fundamentals" of interest to all evaluators, collected 24x7 by armies of market-maker (MM) employees world-wide.

Such forecasts are constantly being refined every moment investment markets are operating, and are made part of every market-day's closing records. They provide an historical record (in subsequent market price actions) of how well the "smart money" can make useful forecasts - for specific stocks, ETFs, and indexes.

Present-day markets are driven by major investing organizations commanding multi-billion dollar portfolios with stock contents which can only be adjusted by negotiated volume (block) trades between peers, not by "open auction". Such trades set and move posted prices.

The individual investor typically is merely along for the ride. He/she needs to have a sense of where the negotiators are likely to head, pricewise. Conventional analysis often provides superficial descriptions and little linkage between operating minutia and price forecasts. As an example here is how Yahoo Finance reports on EDIT.

Editas Medicine, Inc. operates as a clinical stage genome editing company. The company focuses on developing transformative genomic medicines to treat a range of serious diseases. It develops a proprietary genome editing platform based on CRISPR technology to target genetically addressable diseases and therapeutic areas. The company develops EDIT-101 for Leber Congenital Amaurosis type 10, a genetic form of vision loss that leads to blindness in childhood. It also develops other therapies for eye diseases, such as Usher Syndrome 2A, which is a form of retinitis pigmentosa that also includes hearing loss; Retinitis Pigmentosa, a progressive form of retinal degeneration; and Herpes Simplex Virus 1 that causes lifelong infections leading to ocular and oral disease.

In addition, the company develops hematopoietic stem cells for treating sickle cell disease and beta thalassemia. It has a research collaboration with Juno Therapeutics, Inc. to develop engineered T cells for cancer; strategic alliance and option agreement with Allergan Pharmaceuticals International Limited to discover, develop, and commercialize new gene editing medicines for a range of ocular disorders; and strategic research collaboration and cross-licensing agreement with BlueRock Therapeutics to combine their respective genome editing and cell therapy technologies to discover, develop, and manufacture engineered cell medicines. The company also has a strategic research collaboration agreement with Editas Medicine, Inc. to explore in vivo delivery of genome editing medicines to treat neurological diseases. The company was formerly known as Gengine, Inc. and changed its name to Editas Medicine, Inc. in November 2013. Editas Medicine, Inc. was founded in 2013 and is headquartered in Cambridge, Massachusetts.

Not much help, is it?

Instead, here is what the MMs' hedging actions tell today about how high (and low) the stocks might get priced, and how they each behaved subsequent to prior forecasts like the ones now being seen:

Figure 1

The essence of valuation is in comparison, which requires that the compared measures be as close to identical as possible. To that end we place all of our valuations in a carefully defined set of measures, and describe them in as parallel set of comparisons as is possible.

To do so often presents what many readers recognize as text and ideas they have encountered before, as they have in our just-published comparison between Microsoft and Boeing. The use of the heading for this section of the article as an accelerant to reading provides for experienced readers an economy of time and effort, while leaving for the newly-initiated the opportunity for an important introduction.

What is important to us in this analysis is how big a price gain is in prospect, column [E], and how likely is today's RI forecast to produce a profit [H] as a proportion of the [L] sample of such forecasts. That combination result appears in the [I] %payoff which includes loser forecasts as well as the 82% winners. The size of [I] relative to [E] is a measure of [E]'s credibility in [N].

Time required [J] to accomplish the payoff is another important dimension for any investment mission. The retirement, tuition, or health emergency clock won't patiently wait for "long-term-trend" investments to be "sure" (like EK, GM, GE, and others) of their "passive investment" buy&hold strategy results. Compound Annual Gain Rates (CAGR) are the essential measures [K]. Figure 3's rows are ranked by the historical results (of today's RI) statistic.

One additional complication of being time-efficient in an investment strategy is that the score-keeping can't be easily sliced up into uniform time periods. That is not what happens to holdings in an active investment strategy. Gains (and losses) occur in irregular lumps of time, and we need to evaluate likely prospects in the way they may be accumulated.

What is done in proper financial analysis of any capital commitment is to anticipate the RATE of gain or cost in units of change per time of involvement. The most commonly used measure is basis points per day, where a basis point is 1/100th of a percent.

That's a tiny unit, but is what works best. Put together and maintained each day for a year, 19 of them would double your investment. They can be powerful.

In Figure 1 we use the Odds of gain [H] as a weight for the average prior payoffs [I], and take the complement of [H] ( 100 - H ) as a weight for the risk prospect [F]. Put together as [O] + [P] in [Q] we have an odds-weighted net outcome of each row's prior MM RI forecast sample [L]. Then by converting those [Q] nets into bp/day in [R] we have a guide to making investment selection decisions across a broader array of alternatives.

Taking measurements into such precision where the potentials are great for errors in forecasting may only serve to point out the limits of their usefulness. And where the differences between alternatives are great, the efforts involved may not be practical. But the fact remains that investors and investment organizations are determined to risk capital in these uncertain ventures, and progress in some areas of the unknown need guide-rails.

So figure 1 may tell us that if the future is repeated then in this case EDIT is a superior portfolio choice to any of the five alternatives generally being considered by investors consulting Yahoo Finance's data. EDIT's stock superiority lies principally in that in the next 3 months it has better odds of seeing a price +19% higher while encountering interim price drawdowns not significantly worse than any of the alternative stock investments, and do it in approximately the next 8 weeks.

That rate of gain is a CAGR of +201%, which compares to a probable parallel investment in the S&P 500 index ETF (SPY) of some +15%. Out of a population of over 2,700 other coming price range forecasts from the same source an average CAGR of +17% involves roughly equal interim risk exposure of -10% which is typically not only encountered, but also suffered in terms of actual capital loss experience, reducing that forecast population's expected +14% gain to only +3% in the process.

Meanwhile, the best 20 candidate stock investments from that population actually achieved +19% gains, better than the +14% expected, and by being alert to day-by-day price moves accomplished them in the same 8 week average holding period of EDIT, for CAGR rewards at a 342% rate.

Will all these price changes be repeated? Probably not precisely, but at least you have some norms to compare with.

To provide a sense of how EDIT price range forecasts by MMs have been trending recently Figure 2 shows daily expectations for the past 6 months and Figure 3 shows once-a-week excerpts over the past two years.

Figure 2

The small blue picture here shows the distribution of forecast Range Indexes during the past 5 years' 1261 market days. Recording the daily balance between expected upside and downside price changes likely, the current measure of 29 is clearly below its visual average, supporting the 82/100 odds of higher coming prices.

Figure 3

Editas Medicine presents evidences of coming price change prospects which are superior to many relevant equity investment alternatives, and justify its buy as a near-term wealth-building investment.

Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in EDIT over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Peter Way and generations of the Way Family are long-term providers of perspective information, earlier helping professional investors and now individual investors, discriminate between wealth-building opportunities in individual stocks and ETFs. We do not manage money for others outside of the family but do provide pro bono consulting for a limited number of not-for-profit organizations.

We firmly believe investors need to maintain skin in their game by actively initiating commitment choices of capital and time investments in their personal portfolios. So, our information presents for D-I-Y investor guidance what the arguably best-informed professional investors are thinking. Their insights, revealed through their own self-protective hedging actions, tell what they believe is most likely to happen to the prices of specific issues in coming weeks and months. Evidences of how such prior forecasts have worked out are routinely provided in the SA blog of my name.

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