Highest Valuation Method

[ChP]

Does someone know why the comparables method gives a higher valuation for a company than DCF?

 

[bchad]

Everything is overvalued at the same time, maybe?

 

[Greenman72]

Because the valuator is making an error in his DCF modeling.

 

[higgmond]

There could be a lot of reasons:
1. Poor choice of public companies
2. Poor choice of multiples
3. Overly conservative discount rate
4. Irrational exuberance in the market
How big a difference are you talking about? Are you using forward multiples, or just historic multiples?

 

[ChP]

Thanks for the replies guys, I am using previous transactions. I guess the answer lies to higher premium being paid?

 

[krazykanuck]

Let me get this straight… you’re asking a bunch of strangers, who don’t know what you’re valuing or what your inputs are, why your multiples approach gives you a higher value than a DCF. Ok. With that in mind, the answer is C. Next!

 

[ChP]

Generally speaking, which method tends to give higher value? Is it comparables again?

 

[Greenman72]

In theory, all absolute valuation methods will produce the same answer. Comparables will give a higher value if the companies you are comparing to are “hot” or demand a higher price. If they are depressed, then will give a lower price.