Question related to valuation using multiples
Hi all,
Looking for feedback from some of the experts on calculating an implied share price based on multiples using the following approach (see below).
You find 1-year forward price multiples (EV/sales, EV/EBITDA) based on a set of peers that are comparable to a company you are analyzing. You apply said multiples to sales and EBITDA projections that you developed for the company you are analyzing to find an EV, market cap, and implied share price that is 5 years out, and determine that the CAGR (from today’s share price to year 5) is 30%.
I know this is a pretty high-level approach, doesn’t account for future growth/decline in the company, not the company’s intrinsic value… But I’m wondering what are the other major drawbacks or benefits of using an approach like this to determine where a company could be trading in 5 years?
Do investors or ER professionals ever use something like this or is it too simple/high-level?
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