Question
You have learned about several different approaches for stock and company valuation including the Price-Earnings (or Price-EBITDA) Multiple Approach, which is a relative approach for
You have learned about several different approaches for stock and company valuation including the Price-Earnings (or Price-EBITDA) Multiple Approach, which is a relative approach for stock valuation. After employing other approaches, you are now ready to apply the P-E multiple approach to valuing a young but rapidly-growing publicly-held company in the biomedical sector that your company is considering to acquire. Your target company has been in business for five years since its IPO, and has not recorded a profit yet. As a newly-hired assistant to CFO, you are in charge of valuing your target company. Discuss what problem(s) you might encounter in applying the P-E (or P-EBITDA) Multiple Approach and what alternative RELATIVE approach(es) you could use in place of the P-E (or P-EBITDA) Multiple Approach to value your target company.
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