Undervalued or overvalued?
Say that a company X has $20 million in short liabilities and $30 million in long term liabilities. It has $125 million worth of assets and 10% of those assets are reported as cash. There are 10 million shares of the company stock in outstanding and the current price per share of the stock is $17.50. The company reported $85 million in revenue.
so the stock is Undervalued or Overvalued also, what is the EV to R ratio?
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1 solution
Let's see what the EV / R ratio tells us, we go by parts. EV = Enterprise Value on the R = Revenue that means that if this company is cheap or expensive since the EV tries to value its debt in positive and its assets in negative to determine if the company is cheap in its definition, checking if reaches the revenue value. In other words, the lower the number due to the subtraction of the assets, the greater the demand and the price to pay in the future, so it's cheaper now. Calculations: EV = $ 175 million + $ 50 million - $ 12.5 million = $ 212.5 million. EV / R = $ 212.5 million / $ 80 million -> 2.65, which makes it cheap since the average consensus without counting which sector it belongs to is 20 to 15 EV / R therefore we conclude in the result that it is undervalued by 2.65 .