medium · CFA Level I Equity Investments
Caldera Glass is a specialized manufacturer of high-strength architectural glass. After a period of rapid demand growth that attracted several new entrants, the industry is currently experiencing a deceleration in growth and aggressive price competition as firms attempt to utilize excess capacity. Caldera’s management recently announced a shift toward a differentiation strategy, investing in proprietary coating technology to reduce buyer price sensitivity. Currently, Caldera has a book value per share of 25.00, a required return (r) of 10%, a sustainable ROE of 14%, and long-term growth (g) of 4%.
Using the method of forecasted fundamentals, Caldera’s justified price-to-book (P/B) ratio is closest to:
- 1.40
- 2.33
- 1.67
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