Ann: Trading Halt, page-32

Really not sure about this one.

A high price, and a media agency to boot. Not something they have a lot of experience with, plus it's a very competitive field


I'm not really sure either, but I don't think we can judge this acquisition as expensive or otherwise because plainly we don't have enough information. Even if RXP pays 8 x earnings, that tells us nothing about the company's track record of earnings growth (assuming that it has grown) nor the future projected growth rate of earnings, nor what is happening with the current management / founders of 'The Works' - will they be staying on?

If I told you the acquired company had grown earnings 20% pa for the last 5 years and is expected to do so for the foreseeable future, then RXP could be getting a bargain if it pays 8 x earnings, as The Works is being bought on a Price-To-Earnings-Growth (PEG) Ratio of just 0.4. Contrarily if earnings growth is expected to be only 4%, then a PEG Ratio of 2 is not so appealing for shareholders!