Bsupposedyouareaskedtovaluepellagiaincgiventhefollowin

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Unformatted text preview: $5.63 per share. The company is expected to net $38 million in the next 12 months. Forecast sales and EBITDA are $633 million and $57 million, respectively. Debt outstanding is $120 million. – a) What is the current enterprise market value of Pellagia? – b) Supposed you are asked to value Pellagia Inc. given the following information. What is your estimate of equity value? Of enterprise value? Price-to-Earnings Price-to-Sales Abercrombie & Fitch 13.04 1.58 Ann Taylor Stores Corp 26.10 0.78 Bebe Stores Inc 15.36 1.41 Gap Inc N/A 0.76 Limited Brands Inc 18.59 0.96 Talbots Inc 14.11 1.06 5 Finding overvalued or undervalued firms using relative valuation method • Generally a firm is overvalued if its multiple is higher than the average and vice versa. (NB use relative valuation method with care!) • Higher multiple may be explained by higher growth potential • Co. 1 2 3 4 ‫׃‬ AV X • PE 17.96 21.92 42.59 14.81 PBV .52 2.88 4.3 1.84 PS .2 .79 1.51 1.10 Exp Growth 33% 21 20 11 Margin 1.12 3.60 3.54 7.45 ROE% 2.88% 13.15% 10.09% 12.41% 18.15 27.09 2.57 2.39 0.81 1.11 16 9 4.62 4 14.53% 8.82% X is overvalued ! 6 PEG Ratio • Used to adjust relative valuation methods for differences in growth rates among comparable firms. • A lower PEG means that the stock is undervalued. (MVT/VIT) = A and VITGR MVT = A x VITGR x VIT where A = Market price to value indicator relative to the growth rate of value indicator (e.g., (P/E)/ EPS growth rate) MVT = Market value of target VIT = Value indicator for target (e.g., EPS) VITGR = Projected growth rate in value indicator (e.g., EPS) 7 Market-Based Methods: Comparable Companies’ Example Background: An analyst selects two companies that are believed to be quite comparable to the target company that she wishes to value. Three indicators...
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This document was uploaded on 03/30/2014.

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