I have been taking general notes on trading comps. Critiques?
- Typically see an output page and input page.
- Input page - You put in all the data.
- Output page - Takes the data and presents it for analysis.
- On the output page, you’ll see a list of comparables (target company and its peers).
- Typically followed are the ticker values (Ex: AMD), Market capitalization (outstanding shares [company stock held by all shareholders] * market price) (mm), and Enterprise value (Market cap - Net Debt).
- Comparables are shown on an LTM basis, a Year 1 Forecast, and a Year 2 Forecast.
- Revenues, EBITDA, EBIT, and EPS - Absolute metrics
- LT Growth Rate (Typically 5 years out)
- Better to look at the multiples (EV/Revenues, EBITDA, EBIT) - done for LTM, Year 1 Forecast, Year 2 Forecast - to get a better comps analysis. This standardizes against the size issue of various companies.
- PEG Ratio is the P/E / LT Growth Rate - Standardizes against larger P/E multiples.
- PEG Ratio shows if you’re overvalued, valued well, or undervalued.
- Figuring out the peer group is actually a challenge.
Thanks.
Why don't you put more thought into what the output is actually telling your and what various differences in multiples would imply for both the companies in your comparables universe as well as the company you are evaluating.
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