Adjusting Valuation Multiples and the China Price (Part 2)
Last week we discussed the methodology for adjusting guideline public company valuation multiples for size, and we observed that the adjustment can be significant. In last week’s example, the P/E multiple of an Ibbotson 3rd decile company as lowered from an unadjusted 14.9 to an adjusted 7.3. We also noted that such an adjustment often needs to be considered when the company you are valuing would fall in the size range of the Ibbotson 10th decile. So the question was whether we could find a source of 10th decile companies when the
Another resident of the 10th decile is American Oriental Bioengineering (Ticker AOB), a NYSE listed pharmaceutical company. AOB’s P/E is 5.1. Bristol Myers Squibb, a first decile company, has a P/E of 14.6.
Sysco (ticker SYY), an American food distribution company, has a market cap of $17.7 billion, putting it in the 2nd decile. SYY’s P/E is 15.33. In contrast, Chinese food distributor China Organic Agriculture (ticker CNOA) has a market cap of $35 million and a P/E of 3.6.
Gulf Resources (ticker GFRE) is a NASDAQ listed producer of basic chemicals like bromine. GFRE’s market capitalization of $325 million puts it in Ibbotson’s 9th decile, so a small adjustment could be considered to its P/E of 9.4 when valuing a 10th decile company. The companies Google lists as competitors, Olin Corporation (ticker OLN) and Cabot Corporation (ticker CBT) have market capitalizations of $1.5 and $1.8 billion respectively, putting them in the 6th decile. OLN’s P/E is 14.8 and CBT’s P/E is 36.4.
These are not rare examples. There are scores, if not hundreds of
So what do these
Raymond J. ("RJ") Dragon MBA, MS, ASA, CFFA is a Principal in Citrin Cooperman's Valuation & Forensic Services practice in the New Jersey / New York City area. His work encompasses valuations for litigation support, marital dissolution, shareholder disputes, estate and gift tax, intangible asset valuation, purchase price allocation and financial reporting.