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Company A and Company B are peer companies in terms of business characteristics, but they are...

Company A and Company B are peer companies in terms of business characteristics, but they are currently trading at substantially different multiples. What discrepancies in financial characteristics could help explain this situation?

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Answer #1

There could be many reasons for different valuations by the market. For example Company A could have better margins in their business operations as well as a conservative capital structure with less debt. It could also possess a technological advantage which suggest higher growth for Company A.

While Company B have issues related to a high amount of employee turnover, a more aggressive capital structure, underperformed against its estimated earnings or have issues with regards to supply chain and distribution which got published.

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