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Home | Getting Started | Personal Finance | Q & A | Sample Portfolio | Glossary | About Us |
| Date: Monday 15th 2010f March 2010 01:40:34 AM |
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Q & A - Price Earnings Ratio, Fair Value - 03/24/2009 |
| By: Hari Wibowo |
| Name: Robin |
| Website: N/A |
| Date posted: Tue, March 24, 2009 |
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Question:
Blake owns
$5,000 dollars worth of WOW shares. Woolworth has reported an NPAT figure of 1.294 billion. It has 1.207 billion shares on issue. Its current market price is $26.50. What is the price earnings ratio based on reported NPAT? A forecast for WOW's EPS for the coming financial year is $1.485 per share. The current industry average P/E ratio is 14.05. Calculate the Fair price based on the earnings forecast. What is the fair price using this forecast? |
| Answer: |
| Based on the above information, Woolworth spots an earning per share of ($ 1.294 B / 1.207 B shares) = $ 1.07 per share. Thus price earning ratio of Woolworth is: $ 26.50/ $ 1.07 = 24.77 |
| What method of fair price would you like to use? From the information given, it seems that we need to standardize WOW's fair value based on its peer's valuation. If that is the case, fair value of WOW's common stock is: 14.05 x $ 1.07/ share = $ 15.03 per share. |
| Hari - Novice Investing |
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Hmm, I am confused. And I have questions |
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I'm fine, thanks. Bring me back to main page |
| Disclaimer: The sole purpose of this article is educational. This article is merely the opinion of the writer and is not in any way a buy/sell recommendation regarding any securities. |
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