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For this assignment you will submit an Excel spreadsheet that consists of a competitive landscape that represents a growth company of your choice and its

For this assignment you will submit an Excel spreadsheet that consists of a competitive landscape that represents a growth company of your choice and its peer group. You will also submit a paragraph or two (as a team) that helps the reader to interpret and understand how you have selected this peer group, that explains the methodology that you have used. For example, why have you selected the specific ratios that you have chosen?
To help guide your analysis, please read the Pentacoff article "The Dangers of DCF for Growth Valuation", paying particular attention to pages 6-8(section called "Ratios as the best alternative for valuing growth"
Then refer to the Fabozzi et al. article called "Equity Valuation, Science, Art or Craft" posted to Canvas. Pay particular attention to p.36-41(PDF pages) which refers to the section titled "Relative Valuation and Market Multiples" (p.21)
Step 1: Consider Pentacoff's discussion regarding the challenges of using DCF analysis to value growth stocks.
What does Pentacoff propose as a solution?
Step 2: Next refer to the Fabozzi's article the following:
What is a market multiple?
What are the most widely used market multiples (refer to p.36)?
Based on the interview data provided (p.36-41), what should an analyst be aware of when using relative valuation?
How should an analyst view the merits of relative valuation when examining an entire sector?
Should an analyst consider using an alternative valuation method (like DCF) in addition to relative valuation or does relative valuation stand on its own merits?
Step 3: Consider the following questions in determining the appropriate ratios.
How does your target company generate revenue?
Is your target company "Profitable"? How are you defining "profitability"? Explain. (What is EBITDA?/What is EBIT?)
What are company specific risks for your target company that an investor should consider?
Using the relative valuation methodology described by Pentacoff and Fabozzi, (also see the Spotify example in the Powerpoint called Relative Valuation),(also look at the Mechanics Case), determine whether an investor should consider an investment in your target company at the current prices.
What metrics (ratios) should you use?
Build a relative valuation matrix to support your conclusions

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