Session 21 (UG) and Session 19 (MBA): Pricing Analytics and Peer Groups
from Aswath Damodaran Hosted by Aswath Damodaran
During thisclass, we started by continuing to examine how to deconstruct multiples to determine what drives each multiple, using an intrinsic value model as a starting point and employing algebra for two reasons:1. It yields a construct for creating your perfect cheap company (low PE, high growth, low risk, high payout etc.) that you can then use as a basis for screening fo cheap stocks. In fact, I have a generic post on screening built around this:https://aswathdamodaran.blogspot.com/2012/06/passive-value-investing-screening-for.html2. It gives you questions you can ask, when presented with a stock to buy or sell, based upon a pricing. (This company is cheap because it trades at 4 times EBITDA, for example…)3. It yields insight into each multiple’s companion variable, the one number you need to know to use a multiple well. (PE (growth), PBV (ROE), EV/Sales (Operating margin)While the examples that I used in class are dated, they were meant to illustrate this process, and how statistics can be used as a tool.Start of the class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/tests/relval2btest.pdfSlides: https://nyu.box.com/s/vb7rgx0akt21k5crcwwos9n0cq948wipPost class test: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session21Ctest.pdfPost class solution: https://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session21Csoln.pdf
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