$4/share, read this article.
Placing a Value on This Spider Silk Technology
by Joe on January 22, 2010
We believe an analysis of the underlying monetary value of a robust technology for the production of a new “super fiber” based on spider silk is extremely interesting. Several years ago DuPont Corp. purchased a controlling interest in Magellan Systems International, the developer of the super resilient fiber known as M5. Terms of this deal, however, were never released to the public and therefore provide us with little assistance in determining the value on this technology.
DuPont currently realizes in excess of $5 billion per year from sales of Kevlar. While extremely difficult to place a value on only this part of DuPont’s business, attempting to do so anyway yields some interesting numbers.
The market capitalization of DuPont is approximately 1.1 times estimated 2009 revenues. If we use this same price to sales ratio applied to the Kevlar product, we believe we can make an argument that the market value of Kevlar is at least $5.5 billion ($5 billion times 1.1, which is the price to sales ratio for the entire company). Kevlar, however, is one of DuPont’s flagship products and, therefore, we would conclude that the market value of Kevlar significantly exceeds $5.5 billion. If, for lack of a better multiplier, we apply a 1.5 “flagship product” multiplier to the $5.5 billion number, we derived above, we could perhaps make the argument that Kevlar is worth approximately $8 billion.
Of course, comparing a completely undeveloped product such as spider silk to the most successful synthetic technical fiber ever produced calls for a bit of stretching of one’s imagination. We do believe that this analysis is useful, however, as it demonstrates the very high value that is placed on such technologies.
Should Kraig Biocraft Laboratories produce a meaningful breakthrough in the laboratory over next year and if the company is able to further refine its technology into a commercially viable transgenic species capable of significant expression of spider silk proteins, we believe such a discovery will likely be immediately worth several hundred million dollars to one of the multinational corporations involved in the technical textiles industry.
Thus, we are establishing our price target for this stock at $4.00 per share, which represents a market capitalization of $200 million divided by 50 million outstanding shares. This is price target is predicated on the company reach this near term goal, however.
Should additional refinements be made and actual production of fibers commence resulting in the beginnings of a robust fast growing market for spider silk-based products, we believe the value of this technology could potentially skyrocket, ultimately being worth billions of dollars to the company’s investors. Shares of Kraig Biocraft Laboratories are clearly speculative, but offer some exciting appreciation possibilities in the future.
Considering the significant advancements being made in the laboratory and the strong increases in micro-insertion productivity that have resulted from a change in technique and the addition of personnel, we believe the risk reward ratio relative to this stock is strongly enhanced.
Simply put – this company may be very close to achieving a major breakthrough that will result in the common shares of KBLB becoming very valuable.
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