Question

You would like to use multiples analysis to estimate stock price of Samsung. The following information is available to you. You know that Samsung has sales of $700 millions and EBITDA of $500 million. Samsung has net debt of $220 million and 100 million shares outstanding. You also know the following about LG and Sony. Enterprise value for Sony and LG are $800 million and $1,300 million respectively. Sony’s sales and EBITDA are $235 million and $115 million. LG’s sales is $550 million and EBITDA is $400 million. What is your best estimate of Samsung’s stock price?

Answer 1

Enterprise value to EBITDA for Sony (EV/EBITDA) = 800/115 = 6.96 times

Enterprise Value to EBITDA for LG = 1,300/400 = 3.25 times

EV/Sales for Sony = (800/235) = 3.4 times

EV/Sales for LG = (1300/550) = 2.36 times

Average EV/EBITDA = 6.96+3.25/2 = 5.1 times

So, Samsung's EV using EV/EBITDA = 5.1* EVBITDA = 5.1 * 500 M = $ 2552.5 M

Average EV/Sales = (3.4 + 2.36) / 2 = 2.88 times

Samsung's EV using EV/Sales = 2.88* 700 M = $ 2016 M

So EV range for Samsung { 2016 , 2552.5}

For the lower range MV of samsung = EV - Net Debt = 2016 - 220 = $ 1796 M

Price per share = 1796/number of shares o/s = 1796 / 100 M = $ 17.96

For the upper range, MV of samsung = 2552.5 - 220 =$ 2332.5

Price per share = $ 2332/100 = $ 23.32

So the range of prices for Samsung is {17.96 23.32}