Valuation – EPS affected due to covid | The Investment Quadrant by The Fifth Person

Questions › Category: Investor Psychology › Valuation – EPS affected due to covid

Hong Lee Heng asked 2 years ago

Hi Victor,
May I know how we should perform valuation for good company highly affected by covid? eg Starbucks EPS drop to 0.79 for 2020 from 2.92 year before due to covid, restructuring etc, in this case when we calculate the average PE, using median PE is more accurate (ard 27X)? and to calculate IV which EPS we shd use? average 5Y EPS?
Please advise. Thanks

1 Answers

0 Vote Up Vote Down

Victor Chng answered 2 years ago

Hi Hong Lee,

Starbucks is able to grew their EPS through the years till 2019. Covid pandemic temporary affected their business, hence if Covid is over, you can expect them to bounce back. Hence, you should use the pre-covid EPS which is 2019 EPS to calculate IV, assuming they recovered back to normal. Yes, you can use the median PE of 27x.

Hong Lee Heng replied 2 years ago

Got it. Thanks Victor.

Victor Chng replied 2 years ago

Welcome Hong Lee :)