The following is a transcription of the above video, and The Market Herald Canada has edited it for clarity.
Welcome to Wiser Wealth. Recently, I spoke with Howard Katz, managing director at Research Capital Corporation, who is a regular on our Investor Series. We are discussing how to set valuation targets.
TMH: Howard, what factors do you consider when setting a valuation target for an investment in a publicly traded company?
Katz: Well, that’s a great question, Brieanna.
There could be several factors that go into a company valuation analysis. What we look to do first is identify the proper metrics, which to apply to a specific company.
And that has a lot to do with the sector that the company is in. A traditional cash-flowing business will look very different than a mining company or to a growth-orientated technology company. It really depends on the type of company that you’re looking for.
One size does not fit all. I would say at a very high level, what I like to do is first look at the overall industry research, find the applicable multiples to analyze a company, and then do a deeper dive based on the relevant multiples for that specific company.
TMH: Are you able to provide any insights into the specific financial metrics or ratios you might rely on when establishing a valuation target for potential investments?
Katz: You know, I can basically address it at this stage at a relatively high level. If for example, we’re looking at a company that has earnings then I would look at the universe of companies that are like it and see what level of earnings multiples that those companies
may have in comparison to its peer group.
I would look at it a little bit more closely. I should add though, that it doesn’t always mean that just because a company is trading at a discounted multiple to its peer group, there may be a very good reason for that.
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