Question

Suppose Rocky Brands has earnings per share of $2.21 and EBITDA of $29.2 million. The firm also has 5.8 million shares outstanding and debt of $135 million (net of cash). You believe Jared's Outdoor Corporation is comparable to Rocky Brands in terms of its underlying business, but Jared's has no debt. If Jared's has a P/E of 13.3 and an enterprise value to EBITDA multiple of 7.5, estimate the value of Rocky Brands stock using both multiples. Which estimate is likely to be more accurate? Rocky Brands' stock value by using the P/E ratio is $ per share. (Round to two decimal places.) The value of Rocky Brands by using the P/E ratio is $ million. (Round to one decimal place.)

Answer 1

To estimate the value of Rocky Brands stock, we can use the P/E ratio and the enterprise value to EBITDA multiple. Using the P/E ratio, the estimated stock value is $29.393 million. Using the enterprise value to EBITDA multiple, the estimated stock value is $164.393 million. The estimate using the enterprise value may be more accurate as it considers the company's debt.

Step-by-step explanation:

To estimate the value of Rocky Brands stock using the P/E ratio, we need to find the market capitalization of the company. Market capitalization is calculated by multiplying the earnings per share (EPS) by the P/E ratio. In this case, the EPS is $2.21 and the P/E ratio is 13.3. So, the market capitalization would be 2.21 * 13.3 = $29.393 million.

To estimate the value of Rocky Brands stock using the enterprise value to EBITDA multiple, we need to find the enterprise value. Enterprise value is calculated by adding the market capitalization, debt, and subtracting cash. In this case, the debt is $135 million and there is no cash. So, the enterprise value would be 29.393 + 135 = $164.393 million.

Comparing the two estimates, the enterprise value to EBITDA multiple may be more accurate as it takes into account the debt of the company, which affects its overall value. However, it is important to consider other factors such as the industry and market conditions before making a final assessment.