Noob Questions - What should I do if my DCF valuation if far lower than my multiples?
I value an established consumer company selling CPG (mostly Instant noodles). The company is notorious for having a cheap valuation despite being the market leader (~70%) of the instant noodle market in the region. We're talking about PBV <1, and PE TTM 9x. Other company comparables are trading at far higher multiples.
What should I do if my DCF valuation is far lower than all multiples that I have used (EV/Revenue, EV/EBITDA, EV/EBIT)?
I've tried making a football field chart, but it does not make sense since no valuation ranges intersect with each other. Moreover, the multiples show ~350% potential upside, which does not make sense, as the stock never come near that value in its history.
Should I ditch the multiples in this case?
350% upside based on multiples means you're doing it wrong.
1. Yes, very closely related
2. Same geography, and the peers are in the same range of market cap
3. The company is a market leader which still have growth.
Another detail that I forget to mention is that this company generated ~80% of its revenue from a subsidiary selling instant noodle. And the rest, are mostly related sales to the instant noodle subsidiary. The subsidiary is publicly traded at a bigger market size (almost 2.5x bigger)
Can I ask how you have a company with c. 70% local market share in their respective product and were still able to find a representative sample of 1) very close peers, 2) same geography and 3) with a similar market cap?
It seems to me like the peers must be in adjacent products (and perhaps they are more diversified product-wise), otherwise it seems very hard for all those conditions to be met.
I can imagine that a near single-product business would be trading at a discount to companies that offer a wide range of consumer goods, but I have no expertise in this sector.
High probability of having to do with non-controlling interest. How much of the subsidiary do they own? There must be a deduction somewhere either in the IS or in the EV calculation.
They still own majority (80.5%) of the subsidiary. Any idea why this might happen?
Vitae quo repellat quis ipsum. Quia sed et adipisci maiores voluptas est eaque. Est ea ratione minus velit. Aut voluptatem vel odio earum omnis est voluptatem ut. Deserunt modi voluptatem reiciendis earum.
Amet ipsum cumque maiores et voluptas. In blanditiis voluptas accusamus voluptatem accusantium. Iste enim quod optio libero aut maiores. Ipsam eos et nisi quod debitis. Voluptates ea et sit accusantium.
Dolor voluptas qui inventore debitis. Repudiandae qui laboriosam nemo aut. Eos autem molestiae alias illum. Repudiandae sequi ipsum vero rem.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...