Identifying Comparables and Valuation using PB and PE
Refer to information given below to complete the requirements.
Hot Topic, Inc.'s book value of equity is $235 million and its forward earnings estimate per share is $0.38, or $16.7 million in total earnings. The following information is also available for Hot Topic and a peer group of companies (identified by ticker symbol) from the specialty retail sector.
Ticker Market
Cap($ mil.) PB
Current Forward
PE (FY1) EPS 5-Year
Historical
Growth Rate ROE
(T 4Q) Debt-to-
Equity
(Prior Year) HOTT -- -- -- (21.2)% 5.9% 0.00 PLCE $595.1 1.1 14.7 11.8% 8.4% 0.00 JOSB 439.5 1.9 9.1 14.4% 22.5% 0.00 ZUMZ 492.5 3.2 18.5 27.4% 19.8% 0.00 GYMB 1,126.3 5.7 13.0 28.5% 33.5% 0.00 MW 1,217.0 1.5 11.8 28.6% 23.5% 0.11 TWB 437.4 2.5 9.2 4.6% 17.3% 1.02 CBK 375.7 1.6 17.4 (11.6)% 11.8% 0.00 FINL 289.2 0.7 16.3 (7.7)% (0.1)% 0.00 SSI 515.0 1.0 11.9 (7.1)% 11.0% 0.20 DBRN 751.6 1.5 11.4 (0.7)% 16.9% 0.28
(a) Identify the most reasonable set of three companies from this list to use as comparables for estimating the equity intrinsic value of Hot Topic using the market multiples approach.
AnswerCBK, FINL, SSISSI, JOSB, DBRNJOSB, ZUMZ, GYMBMW, TWB, DBRNGYMB, TWB, CBK
(b) Assume that you use as comparables the following set of companies: CBK, FINL, and SSI. Estimate Hot Topic's equity intrinsic value using the PB ratio from these peer companies. (Round average PB ratio to two decimal places for your calculation. Round your answer to the nearest million.)
$Answer million
(c) Use the same comparables as in part (b) and estimate Hot Topic's equity intrinsic value using the PE ratio from these peer companies. (Round average PE ratio to two decimal places for your calculation. Round your answer to the nearest million.)
$Answer million
Identifying Comparables and Valuation using PB and PE
Refer to information given below to complete the requirements.
Hot Topic, Inc.'s book value of equity is $235 million and its forward earnings estimate per share is $0.38, or $16.7 million in total earnings. The following information is also available for Hot Topic and a peer group of companies (identified by ticker symbol) from the specialty retail sector.
| Ticker | Market Cap($ mil.) | PB Current | Forward PE (FY1) | EPS 5-Year Historical Growth Rate | ROE (T 4Q) | Debt-to- Equity (Prior Year) |
|---|---|---|---|---|---|---|
| HOTT | -- | -- | -- | (21.2)% | 5.9% | 0.00 |
| PLCE | $595.1 | 1.1 | 14.7 | 11.8% | 8.4% | 0.00 |
| JOSB | 439.5 | 1.9 | 9.1 | 14.4% | 22.5% | 0.00 |
| ZUMZ | 492.5 | 3.2 | 18.5 | 27.4% | 19.8% | 0.00 |
| GYMB | 1,126.3 | 5.7 | 13.0 | 28.5% | 33.5% | 0.00 |
| MW | 1,217.0 | 1.5 | 11.8 | 28.6% | 23.5% | 0.11 |
| TWB | 437.4 | 2.5 | 9.2 | 4.6% | 17.3% | 1.02 |
| CBK | 375.7 | 1.6 | 17.4 | (11.6)% | 11.8% | 0.00 |
| FINL | 289.2 | 0.7 | 16.3 | (7.7)% | (0.1)% | 0.00 |
| SSI | 515.0 | 1.0 | 11.9 | (7.1)% | 11.0% | 0.20 |
| DBRN | 751.6 | 1.5 | 11.4 | (0.7)% | 16.9% | 0.28 |
(a) Identify the most reasonable set of three companies from this list to use as comparables for estimating the equity intrinsic value of Hot Topic using the market multiples approach.
AnswerCBK, FINL, SSISSI, JOSB, DBRNJOSB, ZUMZ, GYMBMW, TWB, DBRNGYMB, TWB, CBK
(b) Assume that you use as comparables the following set of companies: CBK, FINL, and SSI. Estimate Hot Topic's equity intrinsic value using the PB ratio from these peer companies. (Round average PB ratio to two decimal places for your calculation. Round your answer to the nearest million.)
$Answer million
(c) Use the same comparables as in part (b) and estimate Hot Topic's equity intrinsic value using the PE ratio from these peer companies. (Round average PE ratio to two decimal places for your calculation. Round your answer to the nearest million.)
$Answer million
