Weekly Challenge 8
You have run a
stock, trading at $ 28 today, through a variety of analysis. The summary
results are presented below:
Approach
used Value
per share
DCF $
22
Relative
valuation
PE
Ratio (comparables) $
35: Compared to other companies in the sector
PE
Ratio (market) $
28: Compared to other companies in the market
- How would you describe your results (and
resolve the inconsistent conclusions) to someone who is a novice at
valuation? In other words, how would you explain how a stock can be under,
over and correctly valued at the same time?
- Assuming that all of your valuations are
right, can you estimate whether and by how much the sector is misvalued?