Identification of comparables and valuation using PB and PE Please refer to the information provided below to
Question:
Identification of comparables and valuation using PB and PE
Please refer to the information provided below to complete the requirements.
Hot Topic, Inc.'s book value of equity is $235 million and its estimate of future earnings per share is $0.38, or $16.7 million in total earnings. The following information is also available for Hot Topic and a group of similar companies (identified by a ticker symbol) in the specialty retail industry.
Heart | Market Cap ($ thousand) | PB Actual | Ahead physical education (fiscal year 1) | EPS 5 years Historical Growth rate | ROE (T 4Q) | Debt to Equity (Prior Year) |
---|---|---|---|---|---|---|
CALIENTE | -- | -- | -- | (21,2)% | 5,9% | 0.00 |
PLCE | $595.1 | 1.1 | 14.7 | 11,8% | 8,4% | 0.00 |
JOSB | 439.5 | 1.9 | 9.1 | 14,4% | 22,5% | 0.00 |
ZUMZ | 492.5 | 3.2 | 18.5 | 27,4% | 19,8% | 0.00 |
GYM | 1.126,3 | 5.7 | 13.0 | 28,5% | 33,5% | 0.00 |
megawatts | 1,217.0 | 1.5 | 11.8 | 28,6% | 23,5% | 0.11 |
TWB | 437.4 | 2.5 | 9.2 | 4,6% | 17,3% | 1.02 |
CBK | 375.7 | 1.6 | 17.4 | (11,6)% | 11,8% | 0.00 |
FINL | 289.2 | 0.7 | 16.3 | (7.7)% | (0.1)% | 0.00 |
SSI | 515.0 | 1.0 | 11.9 | (7,1)% | 11,0% | 0.20 |
DBRN | 751.6 | 1.5 | 11.4 | (0.7)% | 16,9% | 0.28 |
(a) Identify the most reasonable set of three companies from this list to use as comparables to estimate Hot Topic's intrinsic equity value using the market multiples approach.
AnswerCBK, FINL, SSISSI, JOSB, DBRNJOSB, ZUMZ, GYMBMW, TWB, DBRNGYMB, TWB, CBK
(b) Suppose you use the following set of companies as comparables: CBK, FINL, and SSI. Calculate the intrinsic equity value of Hot Topic using the PB ratio of these similar companies. (Round the average CP ratio to two decimal places for your calculation. Round your answer to the nearest million.)
$answer million
(c) Use the same comparables as in part (b) and estimate Hot Topic's intrinsic equity value using the PE ratio of these peer companies. (Round the average PE ratio to two decimal places for your calculation. Round your answer to the nearest million.)
$answer million
Financial Accounting
ISBN: 978-0078025549
3rd edition
Authors: J. David Spiceland, Wayne Thomas, Don Herrmann