Provide Correct answer with Working You have been doing a decalled financial ana

Question

Provide Correct answer with Working

You have been doing a decalled financial analysis of XYZ Corporation. The stock of the company trades on the NYSE under the ticker XYZ. The current share price is $68.50 per share. Forward earnings for 2014 are projected to be $8.25 per share. All of the other companies in the same industry trade at forward P/E multiples of between 10 and 13. After careful and exhaustive study you determine that there is no meaningful difference between XYZ Corporation and its comparables in terms of ROE. projected growth, payout ratios and even capital structure. Therefore, you believe that XYZ Corporation is undervalued compared to other companies In the same Industry. Before deciding to buy the stock, however, you also do a careful and thoughtful DCF analysis of XYZ Corporation. You determine that the fair value of the company's stock Is only $53 per share. How can you reconcile these two outcomes? (N.B. Question can be answered in just a few wonds...four...maytoe less. )

Explanation / Answer

P/E ratio =Price per share/annual earning per share

Price per share of xyz=68.50

Annual earnings per share=8.25

P/E ratio=68.50/8.25

=8.30

As other companies in same trade has price earning multiplier between ten to thirteen and xyz has only

8.30. Due to this no meaningful difference , company stock is giving more value in NYSE than its fair value analysed by DCF. No decision regarding buy stock should be beneficial.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.