Discussion on valuation using multiples of comparable firms.
Identify three peers of Apple Inc. Collect the P/E ratio and Enterprise Value / EBITDA ratio for Apple Inc. and its peers. [Hint: Google Finance lists related companies, but you need to choose three sensible peers.]
Discuss why the above two multiples differ across the peer firms, and why it can be challenging if you are asked to value the selected firm using its peer firms’ multiples. [Hint: start with a general discussion, then try to show some evidence from the firms’ statistics and financial information to support your arguments.]
Key points in answer:
No obvious mismatch between the peers and the selected firm. You can collect complete information on multiples – if only one P/E ratio is collected, it must be the forward ratio.
Start the discussion by the DCF equivalence of multiples.
Point out that the main drivers are differences in growth prospects, risks, and payout ratios.
Compare the actual number of at least one aspect of one multiple (e.g., the dividend payout ratio) to support the argument.