“As an equity research associate, you are tasked with computing a fast-growing target's EV/EBITDA multiple on both a trailing (LTM) and forward (NTM) basis, and using the comparison to peers to judge whether the stock is really as expensive as the trailing multiple suggests.”
As an equity research associate, you are tasked with computing a fast-growing target's EV/EBITDA multiple on both a trailing (LTM) and forward (NTM) basis, and using the comparison to peers to judge whether the stock is really as expensive as the trailing multiple suggests.
Task: compute the target's EV/EBITDA multiple on both an LTM and NTM basis, then compare each to the peer group to judge whether the target is fairly priced.
You've pulled the following figures for the target and its peer group.
| Line Item | Value |
|---|---|
| Target Enterprise Value | $2,400m |
| Target LTM EBITDA | $120m |
| Target NTM EBITDA (consensus estimate) | $160m |
| Peer Group Median LTM EV/EBITDA | 12.0x |
| Peer Group Median NTM EV/EBITDA | 11.5x |
LTM EV/EBITDA = Enterprise Value / LTM EBITDA
Using this formula, compute the target's LTM EV/EBITDA multiple.
NTM EV/EBITDA = Enterprise Value / NTM EBITDA
Using this formula, compute the target's NTM EV/EBITDA multiple.
Premium to Peer Median = (Target Multiple / Peer Median Multiple) - 1
Assume:
Using this formula and these inputs, compute the target's premium to the peer median on both an LTM and NTM basis.
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