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 (NASDAQ:ARNA), Threshold Pharmaceuticals (NASDAQ: THLD), and Pharmacyclics (NASDAQ: PCYC), which are waiting on lucrative milestone payments.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.