Valuation Accuracy Using Price Multiple in Thailand
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Abstract
Stock price multiple, measured by multiplying “the ratio of stock price to a value driver” by a value driver (e.g. earning, sales, book value of the company), is a well-known equity valuation technique used in finance field. However, the studies on the application of stock price multiple technique in Thailand is still limited. Therefore, the present study is conducted to serve two major objectives. The first objective is to apply price multiple valuation method to examine the value of various firms listed in the Stock Exchange of Thailand. The second objective is to compare valuation accuracy of different value drivers of price multiple (i.e. EPS, BV, and EBITDA) in order to identify the most accuracy value drivers of price multiple technique. Data on EPS, BV and EBITDA are collected from 580 companies listed in the stock exchange of Thailand from January 2001 to December 2018. Data are classified into eight industrial groups and twenty-eight sectors. The test procedure starts with the selection of comparable firms within the same industry to calculate the price multiple ratio of comparable firms. The price multiple ratio of comparable firms is then multiplied by target firm’s corresponding value driver to calculate the estimated equity value. Finally, the estimated equity value is then compared with the equity price to see valuation errors. Results indicated that the accuracy of price multiple valuations differs for companies in different sectors in the Stock Exchange of Thailand. EBITDA provides the highest valuation accuracy among three value drivers for 14 out of 28 industrial sectors.
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