The following table contains recent data for firms in the pharmacy and consumer
ID: 2801779 • Letter: T
Question
The following table contains recent data for firms in the pharmacy and consumer goods industry. Using the comparables multiples valuation method, determine if SV Co. is correctly valued, over valued or under valued. In addition to discussing why you think SV Co. is correctly valued, over valued or under valued, be sure to include any calculations and state any assumptions and their justifications.
Evergreens
SV Co.
Quick Aid
Walton-Mart
Vita-Nutrition Center
Average
Stock Price
$83.61
$95.66
$7.90
$59.60
$31.11
$55.58
Enterprise Value
($ Bil.)
$103.44
$108.71
$13.27
$233.11
$3.79
Revenue
($Bil.)
$103.44
$139.37
$26.53
$485.65
$2.61
$151.53
EPS
$4.05
$3.99
$2.17
$5.07
$2.83
$3.62
FCF
($Bil.)
$5.19
$13.27
$0.62
$6.18
$2.21
$5.49
FCF/Share
$4.99
$11.44
$0.64
$1.91
$24.42
$8.68
P/E
21.22
24.34
3.81
11.98
11.0
14.47
P/FCF
16.10
13.84
12.79
9.65
14.05
13.29
P/BV
3.06
2.89
138.25
3.37
5.49
30.61
EBITDA
($Bil.)
$6.58
$10.72
$1.3
$36.32
$0.489
$11.08
EV/EBITDA
15.74
10.83
10.63
6.40
7.76
10.27
Gross Margin
24.34
18.20
28.56
24.83
24.50
24.09
Operating Margin
4.67
6.31
3.32
5.59
16.58
7.29
Number of Shares
(Billions)
1.04
1.16
0.971
3.23
0.905
1.46
Evergreens
SV Co.
Quick Aid
Walton-Mart
Vita-Nutrition Center
Average
Stock Price
$83.61
$95.66
$7.90
$59.60
$31.11
$55.58
Enterprise Value
($ Bil.)
$103.44
$108.71
$13.27
$233.11
$3.79
Revenue
($Bil.)
$103.44
$139.37
$26.53
$485.65
$2.61
$151.53
EPS
$4.05
$3.99
$2.17
$5.07
$2.83
$3.62
FCF
($Bil.)
$5.19
$13.27
$0.62
$6.18
$2.21
$5.49
FCF/Share
$4.99
$11.44
$0.64
$1.91
$24.42
$8.68
P/E
21.22
24.34
3.81
11.98
11.0
14.47
P/FCF
16.10
13.84
12.79
9.65
14.05
13.29
P/BV
3.06
2.89
138.25
3.37
5.49
30.61
EBITDA
($Bil.)
$6.58
$10.72
$1.3
$36.32
$0.489
$11.08
EV/EBITDA
15.74
10.83
10.63
6.40
7.76
10.27
Gross Margin
24.34
18.20
28.56
24.83
24.50
24.09
Operating Margin
4.67
6.31
3.32
5.59
16.58
7.29
Number of Shares
(Billions)
1.04
1.16
0.971
3.23
0.905
1.46
Explanation / Answer
We look at the Price to earnings multiple (P/E) which is the most important parameter to evaluate if the company is correctly valued. We can see that SV Co. has a P/E ratio 24.34 which is the highest when we compare it to 14.47 which is the average PE ratio of the industry. So in terms of P/E we can say the company is trading at high valuations (over valued)
Next we look at the price to book which also gives us an idea of the valuation. It is 2.89 which is not very high. Any Price to Book of value higher than 8 or 9 is considered as bubble valuations. So in terms of Price to Book, the business in correctly valued or not very high
The next we look at the EV/EBITA of 10.83 which is again in line with that of the industry.
The gross and operating margins are again lower when compared to that of the industry which is a negative.
So on a whole, I would say that 3 out of 5 parameters (The P/E and gross and operating margins) suggest company is overvalued and I would conclude that SV Co. is overvalued and would not recommend buying its shares.
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