Equity Valuation and Portfolio Management

QUESTIONS

1. Applying relative valuation approaches is typically more challenging for very small or very large companies. Why?
2. Historical results for the financial and operating performance of listed companies are readily available. Getting reasonable numbers for forecast performance is typically more difficult, and sometimes impossible. Why not rely solely on historical numbers?
3. Consensus forecasts do not incorporate the unique insights into each company that are available from our in-house expert. Why not use our own internal estimates, rather than consensus numbers?
4. Many analysts favor the use of industry-specific multiples for relative valuation purposes. What are some notable examples, and what advantages or disadvantages might be associated with using such metrics?
5. Relative valuation approaches can be used for sum-of-the-parts analysis, but many practitioners will apply a “conglomerate discount” to the results of such analysis. Why do they do so, and what is the normal range applied?

^* The material discussed here does not necessarily represent the opinions, methods or views of Delaware Investments.

¹ Malcolm Baker and Richard Ruback, Estimating Industry Multiples (Cambridge MA: Harvard Business School, 1999).

² See James J. Valentine, Best Practices for Equity Research Analysts (New York: McGraw-Hill, 2011), p. 271.

³ By contrast, in an example of how to assess a small wine producer, the proposed universe of comparables consisted of 15 “beverage firms,” including both small ...