Episode Details

In this session, we continued with our discussion of pricing, starting with the analytics that drive PEG, PBV, EV/EBITDA and revenue multiples. I played the role of a naive equity research analyst, using sloppy pricing to push buy recommendations on stocks in a number of sectors, based purely on the level of multiples (low PE, low PBV etc.) and asking for pushback. In some cases, we just noted qualitatively the forces that may explain the stock’s cheapness (the beverage sector, for example) and in others, we used regressions. The bottom line, though, is that most companies that look cheap deserve to be cheap. The key to pricing is finding a mismatch between the pricing and the fundamentals (low PE & high growth, low PBV and high ROE, low EV to Sales and high margins). It is basis for much of equity research, and takes the form of screens. If you are interested, I have a post that expands on the notion of screening.
http://aswathdamodaran.blogspot.com/2012/06/passive-value-investing-screening-for.html
Since you have access to Cap IQ, you can try this out in any sector
Start of the class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/relval2atest.pdf
Slides: http://www.stern.nyu.edu/~adamodar/podcasts/valUGspr21/session20slides.pdf
Post class test: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session20Btest.pdf
Post class test solution: http://www.stern.nyu.edu/~adamodar/pdfiles/eqnotes/postclass/session20Bsoln.pdf

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