Valuation of Technovate Inc. using Market-Based Approach

Very Hard Equity Valuation Applications Market-based Valuation

In assessing the value of a new technology startup, analysts often employ market-based valuation techniques, especially given the absence of long-term financial metrics due to the company's rapid development phase. Recently, Technovate Inc. went public, and the empirical analysis of similar tech firms revealed varying price-to-sales (P/S) ratios. The average P/S ratio of comparable companies in the sector was found to be 9, while Technovate reported cumulative sales of $20 million in its latest financial year. Market analysts project considerable growth potential for Technovate, bolstered by strategic partnerships and upcoming product launches.

Given this context, which of the following valuations for Technovate Inc. would be most appropriate using the market-based approach?

Valuation based on the average P/S ratio: $180 million

Valuation based on a premium P/S ratio: $225 million

Valuation based on a historical P/S ratio of industry leader: $250 million

Hint

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