Question

Suppose Rocky Brands has earnings per share of $2.26 and EBITDA of $31.4 million. The firm also has 5.3 million shares outstanding and debt of $120 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 13.1 and an enterprise value to EBITDA multiple of 7.4, 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.)
The value of Rocky Brands by using the EBITDA ratio is $ ___ million. (Round to one decimal place.)
Rocky Brands' stock value by using the EBITDA ratio is $ ___ per share (Round to two decimal places.)

Answer 1

The estimate of Rocky Brands' stock value using the P/E ratio is $29.63 per share and $156.5 million in total. The estimate of Rocky Brands' stock value using the EBITDA ratio is $43.82 per share and $232.36 million in total.

Step-by-step explanation:

To estimate the value of Rocky Brands stock using the P/E ratio, we multiply the earnings per share (EPS) by the P/E ratio. In this case, Rocky Brands' EPS is $2.26 and Jared's Outdoor Corporation has a P/E ratio of 13.1. Therefore, the estimate of Rocky Brands' stock value using the P/E ratio is 2.26 * 13.1 = $29.63 per share. To calculate the total value, we multiply the stock value per share by the number of shares outstanding of 5.3 million. Thus, the value of Rocky Brands' stock using the P/E ratio is $29.63 * 5.3 million = $156.5 million.

To estimate the value of Rocky Brands stock using the EBITDA ratio, we multiply the EBITDA by the EBITDA ratio. In this case, Rocky Brands' EBITDA is $31.4 million and Jared's Outdoor Corporation has an enterprise value to EBITDA multiple of 7.4. Therefore, the estimate of Rocky Brands' stock value using the EBITDA ratio is 31.4 * 7.4 = $232.36 million. To calculate the stock value per share, we divide the total value by the number of shares outstanding of 5.3 million. Thus, the value of Rocky Brands' stock using the EBITDA ratio is $232.36 million / 5.3 million = $43.82 per share.