Question

Suppose Rocky Brands has earnings per share of ​$2.17 and EBITDA of ​$30.1 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 13.2 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?

a) Rocky​ Brands' stock value by using the​ P/E ratio is per share. ​(Round to two decimal​ places.)
b) The value of Rocky Brands by using the​ P/E ratio is ​ million. ​ (Round to one decimal​ place.)

Answer 1

The estimated stock value of Rocky Brands using the P/E ratio is $28.64 per share, while the estimated stock value using the enterprise value to EBITDA multiple is $222.34 million.

Step-by-step explanation:

To estimate the value of Rocky Brands stock using the P/E ratio, we need to multiply the earnings per share (EPS) by the P/E ratio. In this case, the EPS is $2.17 and the P/E ratio is 13.2, so the estimated stock value using the P/E ratio is $2.17 * 13.2 = $28.64 per share.

To estimate the value of Rocky Brands stock using the enterprise value to EBITDA multiple, we need to multiply the EBITDA by the multiple. In this case, the EBITDA is $30.1 million and the multiple is 7.4, so the estimated stock value using the enterprise value to EBITDA multiple is $30.1 million * 7.4 = $222.34 million.

Based on these calculations, the estimated stock value using the enterprise value to EBITDA multiple is likely to be more accurate, as it takes into account the overall value of the company's operations and debt.