Question

The Blooming Flower Co. has earnings of $2.10 per share. The benchmark PE for the company...

The Blooming Flower Co. has earnings of $2.10 per share. The benchmark PE for the company from a comparables analysis is 10.

What stock price would you consider appropriate? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Stock price           $  

What if the benchmark PE were 13? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.)

Stock price           $

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Homework Answers

Answer #1

Price to Earnings ratio of PE ratio can be defined as the relationship between stock price and earnings.

The formula for PE ratio is Price per share of the company / Earnings per share of the company.

In other words Stock Price = Earnings per share of the company * PE ratio

Therefore PE can be used to find out the Stock prices when data relating to Earnings per share and PE ratio is given.

Situation 1

Earnings per share of the company = $2.10

PE ratio = 10

Therefore Stock Price = $2.10 * 10

Stock Price = $21

Situation 2

Earnings per share of the company = $2.10

PE ratio = 13

Therefore Stock Price = $2.10 * 13

Stock Price = $27.30

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