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Home | Getting Started | Personal Finance | Q & A | Sample Portfolio | Glossary | About Us |
| Date: Wednesday 17th 2010f March 2010 01:31:34 AM |
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Q & A - Woolworths' Fair Value - 09/12/2009 |
| By: Hari Wibowo |
| Name: jyoti |
| Website: |
| Date posted: Sat, Sep 12, 2009 |
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Question:
Blake works for Woolworths Limited (WOW) and owns 5,000 Woolworths shares that he received in lieu of a bonus five years ago. In its recent results, Woolworths reported an NPAT figure of $1.294 billion. It has 1.207 billion shares on issue. Its current market price is $26.50. a) Calculate the price earnings (P/E) ratio based on the reported NPAT and current market price (to one decimal place). b) Blake has information from a broker that forecasts WOW’s EPS for the coming financial year as $1.485 per share. The current industry average P/E ratio is 14.05. Calculate the ‘fair’ price based on the earnings forecast. c) Discuss whether, based on the calculations above, WOW justifies a buy, hold or sell recommendation. Identify and explain other general and company-specific factors which may be relevant to making an investment decision about this stock. You should discuss some factors that are specific to Woolworths. |
| Answer: |
| a) Price Earning is simply Current market price of Woolworths divided by its NPAT. In this case P/E ratio is: (1.207 Billion shares x $ 26.50 per share)/ $ 1.294 Billion = 24.7 |
| b) If fair price is calculated based on industry average, then Woolworths' fair value will be: $ 1.485 x 14.05 = $ 20.86 |
| c) Since fair price ($ 20.86) is lower than current price ($26.50), we need to sell this shares. |
| Hari - Novice Investing |
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END |
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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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