Relative Valuation III

1
Relative Valuation III
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PEG and Growth

• The PEG ratio is estimated by dividing the PE by
  the expected growth rate. In using PEG, we do
  assume that PE increases proportionately with
  growth. This assumption (which is unrealistic)
  will lead you to be biased against
• Low growth stocks
• High growth stocks
• No bias, since growth is neutralized

3
EV/EBITDA and cross holdings

• The EV/EBITDA multiple is obtained by dividing
  the enterprise value (equity debt cash) by
  the EBITDA. If a firm has minority holdings in
  dozens of other companies, which of the following
  would hold?
• It will look cheap on an EV/EBITDA basis
• It will look expensive on an EV/EBITDA basis
• Unclear

4
Low EV/EBITDA Cheap?

• A low EV/EBITDA multiple is considered a sign
  that a company is cheap. This is true if
• The company does not have huge upcoming capital
  expenditure needs
• The company has a high return on capital
• The company does not have a high cost of capital
• The company does not face a very high tax rate
• All of the above