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Hey, future bankers!

Hope everyone is doing well! Today we’re covering the main driver of a company’s P/E ratio, your least favorite part of your last internship, and Peloton hitting rock bottom.

🚀 Let’s get into it.

🔢 Technical Question

What is the main driver of a company’s P/E ratio?

Let’s dive into the price-to-earnings (P/E) ratio and its main driver, which is growth:

1. P/E Ratio Overview:

   • The P/E ratio is a fundamental financial metric used by investors to evaluate a company’s stock. It compares the market price per share to the earnings per share (EPS).

2. Main Drivers of P/E Ratio:

   • Investor Expectations: The P/E ratio reflects investor expectations about a company’s future growth. A high P/E ratio suggests that investors anticipate strong growth, while a low P/E ratio may indicate lower growth prospects.

   • Risk Perception: Investors often pay a premium for companies with lower perceived risk. A stable, well-established company may have a higher P/E ratio due to lower perceived risk.

   • Industry Factors: Different industries have varying average P/E ratios. For example, technology companies tend to have higher P/E ratios than utility companies.

3. Link to Growth:

   • Forward P/E Ratio: Investors often use forward P/E based on estimated future earnings. If a company is expected to grow rapidly, its forward P/E may be higher.

4. Caveats:

   • Earnings Quality: Be cautious when comparing P/E ratios across companies. Ensure that earnings are of high quality and not artificially inflated.

   • Cyclical Companies: Some companies have volatile earnings due to economic cycles. Their P/E ratios may fluctuate significantly.

Overall, the P/E ratio reflects investor sentiment, growth expectations, and risk perception.

🗣 Behavioral Question

What was your least favorite part of your last internship?

Here are a couple of best practices to follow when responding:

1. Focus on a minor challenge and frame it as a learning opportunity:

• Don't dwell on negatives or complain about the internship itself.

• Choose a minor aspect, like a specific type of task you found repetitive at first.

• Highlight how you overcame it or what you learned from the experience.

• This shows your ability to adapt, solve problems, and find the positive in challenges.

• Example: "One aspect I wasn't initially familiar with was data entry for financial models. While it was detail-oriented, I used the opportunity to develop strong accuracy and time management skills. It also helped me understand the foundation of those models better."

2. Shift the focus to your desire for growth:

• Briefly mention a limitation of your prior role or a skill you wanted to develop further.

• Connect it to your interest in the specific internship you're interviewing for.

• Example: "In my previous internship, the work primarily involved equity research. While I enjoyed it, I wanted more exposure to the deal execution process. This internship at your bank, with its focus on M&A, seems like a perfect opportunity to expand my knowledge in that area."

By following these tips, you can turn a potentially negative question into an opportunity to showcase your positive qualities and genuine interest in investment banking.

🗞 Industry News

🚲 Peloton Hits Rock Bottom

Peloton shares plummeted to a record low as CEO Barry McCarthy announced his resignation, triggering a significant restructuring that will cut the global workforce by 15%. The board is now searching for a replacement, with Board Chair Karen Boone and director Chris Bruzzo serving as interim co-CEOs. McCarthy, a veteran of Spotify and Netflix, had taken over from co-founder John Foley in early 2022 and initiated a major overhaul of the company, including numerous layoffs, management changes, and business outsourcing. Despite efforts to transform Peloton into a services company and forging new partnerships, such as with Hyatt Hotels, the company continued to struggle with scaling up.

The New York-based company, which soared during the early pandemic days due to increased demand for its stationary bikes and fitness classes, faced a decline as people returned to gyms and subscriber numbers dropped. This, coupled with a series of product recalls over safety issues, led to lower sales and profits, and a more than 90% reduction in its valuation over the past three years. In response, Peloton announced a restructuring program to cut annual expenses by over $200 million, reduce its retail showroom footprint, and eliminate about 400 jobs. The company also revised its revenue guidance for this fiscal year to $2.68 billion to $2.70 billion, lower than analysts’ expectations, and anticipates 2.96 million to 2.98 million connected fitness subscribers. Peloton is also revamping its approach to international markets to be more “targeted and efficient.”

Read more about this story below.

Thanks for tuning in today! Best of luck to everyone working through recruiting right now. If you sign an offer, reply to this email and let us know about it! Like seriously, do it—we’d love to hear about it!