Reading 42: Market-Based Valuation: Price and Enterprise Val 2010, face, center, method, price

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Session 12: Equity Investments: Valuation Models
Reading 42: Market-Based Valuation: Price and Enterprise Value Multiples

LOS n: Discuss the importance of fundamentals in the method of comparables.

 

 

 

Enhanced Systems, Inc., has a price to book value (P/B) of five while the median P/B of a peer group of companies within the industry is five. Based on the method of comparables, an analyst would most likely conclude that ESI should be:

A) bought as an undervalued stock.

B) sold or sold short as an overvalued stock.

C) viewed as a properly valued stock.

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The price per dollar of book value is the same as that for the median of the peer group, which implies that it is likely properly valued.

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Enhanced Systems, Inc., (ESI) has a leading price to sales (P/S) of 0.18 while the median leading P/S of a peer group of companies within the industry is 0.10. Based on the method of comparables, an analyst would most likely conclude that ESI should be:

A) bought on margin as an undervalued stock.

B) bought as an undervalued stock.

C) sold or sold short as an overvalued stock.

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The price per dollar of sales is considerably higher than that for the median of the peer group, which implies that it may well be overvalued.

土豆妮

Enhanced Systems, Inc., (ESI) has a leading price to book value (P/B) of four while the median P/B of a peer group of companies within the industry is six. Based on the method of comparables, an analyst would most likely conclude that ESI should be:

A) viewed as a properly valued stock.

B) sold as an overvalued stock.

C) bought as an undervalued stock.

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The price per dollar of book value is considerably lower than that for the median of the peer group, which implies that it may well be undervalued.