Question

Suppose Rocky Brands has earnings per share of $2.26 and EBITDA of $29.7 million. The firm also has 5.5 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 13.1 and an enterprise value to EBITDA multiple of 7.8, 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 PIE ratio is \$ million. (Round to one decimal place.)

Answer 1

To estimate the value of Rocky Brands stock using the P/E ratio, multiply the earnings per share by the P/E ratio. To estimate the value using the enterprise value to EBITDA multiple, multiply the EBITDA by the multiple. The estimate using the enterprise value to EBITDA multiple is likely to be more accurate.

Step-by-step explanation:

To estimate the value of Rocky Brands stock using the P/E ratio, we can multiply the earnings per share ($2.26) by the P/E ratio of Jared's Outdoor Corporation (13.1). This gives us an estimated value of $29.646 per share (2.26 * 13.1 = 29.646). to estimate the value of Rocky Brands stock using the enterprise value to EBITDA multiple, we can multiply the EBITDA of Rocky Brands ($29.7 million) by the enterprise value to EBITDA multiple of Jared's Outdoor Corporation (7.8). This gives us an estimated value of $231.66 million (29.7 * 7.8 = 231.66).

Based on the two estimates, the value of Rocky Brands stock using the enterprise value to EBITDA multiple is likely to be more accurate, as it takes into account the overall value of the company, including its debt.