Question

Ramsay Corp. currently has an EPS of $3.10, and the market seems to price the stock with a PE ratio of 21. Given this information, you expect the stock price today to be $______ . Your team of analysts research the firm and believe that Ramsay will grow earnings at 6% per year. Therefore, your team sets a target price of $______ per share in one year.

Answer 1

Ramsay Corp. currently has an EPS of $3.10, and the market seems to price the stock with a PE ratio of 21. Given this information, you expect the stock price today to be “$65.10”.Your team of analysts researches the firm and believes that Ramsay will grow earnings at 6% per year. Therefore, your team sets a target price of “$69.01” per share in one year.

Stock Price today if the EPS is $3.10 and the PE Ratio is 21 Times

Stock price = EPS x PE Ratio

= $3.10 x 21

= $65.10

Stock Price in one year if the Earnings growing at 6% per year

= Earnings per share in next year x PE Ratio

= [$3.10 x 1.06] x 21

= $3.29 x 21

= $69.01