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The Impact of Intangibles on Base Rates
 
Consilient Observer
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June 23, 2021

The Impact of Intangibles on Base Rates

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June 23, 2021

The Impact of Intangibles on Base Rates


Consilient Observer

The Impact of Intangibles on Base Rates

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June 23, 2021

 
 
  • The shift in investments from tangible to intangible assets has important implications for how investors should think about corporate growth rates.
  • Intangible assets have greater potential economies of scale and higher risk of obsolescence than tangible assets. This means companies with more intangible assets can grow faster, but they can also become irrelevant and shrink faster.
  • Our analysis of historical sales growth rates for U.S. companies reveals both of these results: higher growth and more dispersion, on average, for companies and industries with the highest intangible asset intensity.
  • There are two main lessons for investors: First, it is important to be mindful of the potential shift in the base rate due to the rise of intangibles. Second, skillful investors may be able to identify the companies that will grow faster than expected, hence providing the potential for attractive returns.
     
 
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