Question: Free Travel, Inc., a company that organizes virtual travel tours, is planning an IPO. Its current investors hold 300,000 shares, which at IPO will be converted into common shares at 1:1 ratio. The company competes with the following publicly traded companies: CoachTraveler, VirtualExplorer, Home World, and Stay-at-Home.
Using the Method of multiples based on both P/E ratio and the enterprise value to EBITDA ratio, at what price should the stock be offered? Use the data from the Table below:
| Financial Information |
CoachTraveler |
VirtualExplorer |
Home World |
Stay-at-Home |
Free Travel |
| Shares Outstanding |
150,000 |
600,000 |
500,000 |
1,000,000 |
300,000 |
| Current Stock Price |
$12.00 |
$24.00 |
$34.00 |
$35.00 |
|
| Market Capitalization |
$1,800,000 |
$14,400,000 |
$17,000,000 |
$35,000,000 |
|
| Short Term Debt |
$15,000 |
$ - |
$200,000 |
$ - |
$ - |
| Long Term Debt |
$ - |
$2,750,000 |
$1,245,000 |
$ - |
$1,000,000 |
| Cash & Equivalents |
$400,000 |
$700,000 |
$1,500,000 |
$4,000,000 |
$600,000 |
| Short Term Investments |
$90,000 |
$600,000 |
$250,000 |
$5,000,000 |
|
| EBITDA |
$218,100 |
$395,300 |
$450,000 |
$1,540,000 |
$400,000 |
| Net Income |
($40,500) |
$237,900 |
$291,800 |
$894,500 |
$265,000 |
Which of the four comparable firms is/are the best comparison firm(s) for Free Travel? Why?