Suppose Rocky Brands has earnings per share of $2.31 and EBITDA of $30.4 million. The firm also has 4.8 million shares outstanding and debt of $115 million (net of cash). You believe Deckers Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Deckers has no debt. If Deckers has a P/E of 13.1 and an enterprise value to EBITDA multiple of 7.1, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate?
a)
Value of 1 Share using P/E Ratio = EPS * P/E Ratio
=2.31*13.1
=30.261
Value of Company = Value of 1 share * outstanding shares
=30.261* 4.8 million
=145,252,800
b)
Enterprise value = EBITDA * EBITDA multiple
=30.4 million * 7.1
=215,840,000
Value of company = enterpise value - debt
=215,840,000 - 115,000,000
=100,840,000
EBITDA multipler is more likely to be accurate.
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