Weekly Challenge 7a
This is an exercise with a small sample, but it can get you started on the process of using regressions in relative valuation. In the table below, I have JC PenneyÕs EV/Sales multiple and margin contrasted with the other 7 department stores for which you can get information:
|
Company Name |
EV/Trailing Sales |
Operating Margin |
|
Bon-Ton Stores Inc. (NasdaqGS:BONT) |
0.39 |
2.54% |
|
Saks Incorporated (NYSE:SKS) |
0.63 |
4.79% |
|
J. C. Penney Company, Inc. (NYSE:JCP) |
0.43 |
-10.32% |
|
Dillard's Inc. (NYSE:DDS) |
0.66 |
7.98% |
|
Sears Holdings Corporation (NasdaqGS:SHLD) |
0.20 |
-2.04% |
|
Kohl's Corp. (NYSE:KSS) |
0.76 |
9.80% |
|
Nordstrom Inc. (NYSE:JWN) |
1.04 |
10.86% |
|
Macy's, Inc. (NYSE:M) |
0.81 |
9.63% |
a. Based upon the median and average values of the EV/Sales ratio, how under or over valued is JC Penney?
b. Note that JC Penney has the lowest (most negative) operating margin of the companies in the group. If you were able to control for differences in margins, is JC Penney under or over valued, relative to the other companies in this group?