Question

Two companies are selling at P/E ratios of 20x forward estimates. One is growing EPS at...

  1. Two companies are selling at P/E ratios of 20x forward estimates. One is growing EPS at 24%, the other at 20%. How would you decide which company is more attractive?
Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

P/E ratio of both companies is 20x.

But the EPS of one is 24% and other is 20%.

Since the P/E ratio of both is same, selection should be made on the basis of EPS and Price.

1.EPS of 1st company is growing more i.e. this company is increasing its earning more for its shareholders in comparision to the other company.

2. Price=EPS * P/E

So the Price of 1st company is greater then the other company. (20*24%>20*20%)

And price symbolises what the market is willing to pay for the stock. So if the market is willing to pay more for the 1st company means the given first company is more attractive.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Two Companies, Gamma and Theta have justified forward P/E ratios of 12.59x and 14.29x respectively. Their...
Two Companies, Gamma and Theta have justified forward P/E ratios of 12.59x and 14.29x respectively. Their ROE and payout ratios are : Gamma = ROE 13.5% , Payout Ratio 45% Theta = ROE 15% , Payout Ratio 50% The required rate of return is 11%, If Gamma's payout ratio increase to 55% and Theta's payout ratios decreases to 40%, what would be the most likely resultant effect on their justified P/E ratios ? a. Gamma's P/E ratios will increase but...
a) Based on the following regression whose output estimates the forward P/E ratio for the media...
a) Based on the following regression whose output estimates the forward P/E ratio for the media industry, estimate the price for CanWest if it just announced earnings of $2.75 per share and has the following known characteristics: Beta = 1.3, Payout = 0.55, Earnings Growth = 0.07 Regression Statistics Multiple: R 0.534936 R Square 0.286157 Adjusted R Square 0.195028 Standard Error 0.038288 Observations 54 Coefficients Standard Error t Stat P-value Intercept 14.23657 2.41333 5.89914 0.000062 Beta -0.10747 0.136177 -0.78923 0.433942...
You're comparing two companies: Rayburn and Telford and observe these ratios. Rayburn Telford ROE 27% 30%...
You're comparing two companies: Rayburn and Telford and observe these ratios. Rayburn Telford ROE 27% 30% PEG 1.4 1.4 P/E 17 24 ROS 7% 7% Total Assets/Equity 6 3 EBIT / Interest 4 8 What's the reason for Telford's higher ROE? Is this good thing or a bad thing? Which stock would you invest in? Why?
EPS, P/E Ratio, and Dividend Ratios The Stockholders' Equity section of the balance sheet for Obregon,...
EPS, P/E Ratio, and Dividend Ratios The Stockholders' Equity section of the balance sheet for Obregon, Inc. at the end of 2017 appears as follows: 8%, $100 par, cumulative preferred stock, 200,000 shares authorized, 50,000 shares issued and outstanding $5,000,000 Additional paid-in capital on preferred 2,500,000 Common stock, $5 par, 500,000 shares authorized, 400,000 shares issued and outstanding 2,000,000 Additional paid-in capital on common 18,000,000 Retained earnings 37,500,000 Total stockholders' equity $65,000,000 Net income for the year was $1,240,000. Dividends...
May Stewart, CFA, a retail analyst, is performing a P/E-based comparison of two hypo­thetical jewelry stores...
May Stewart, CFA, a retail analyst, is performing a P/E-based comparison of two hypo­thetical jewelry stores as of early 2009. She has the following data for Hallwhite Stores (HS) and Ruffany (RUF). HS is priced at $44. RUF is priced at $22.50. HS has a simple capital structure, earned $2.00 per share (basic and diluted) in 2008, and is expected to earn $2.20 (basic and diluted) in 2009. RUF has a complex capital structure as a result of its outstanding...
Instructor - Lead Question You are considering investing in one of two companies. Company A has...
Instructor - Lead Question You are considering investing in one of two companies. Company A has earning per share of $5 and a market price of $40. Company B has earnings per share of $12 and a market price of $120. Based on that information alone, which company should you invest in? Explain your answer, including what ratio you used to inform your investment decision. Do you think that you have reviewed sufficient information to make your decision? What other...
Case Study Google and P&G Swap Employees The cultures of the two companies could not be...
Case Study Google and P&G Swap Employees The cultures of the two companies could not be more different. Procter & Gamble (P&G) is notoriously controlled, disciplined, scalable and rigid—so much so that employees call themselves ‘Proctoids’. Google is just as famous for its laid-back, unstandardised, free-flowing culture. So what would cause these two large, successful examples of a strong—yet dissimilar—corporate culture to decide to socialise each another’s employees? One reason clearly is marketing: P&G sees more of its future marketing...
Disney: P/E Ratio 16.69 Netflix: P/E Ratio 89.76 How would you interpret the ratio? Which one...
Disney: P/E Ratio 16.69 Netflix: P/E Ratio 89.76 How would you interpret the ratio? Which one has a higher ratio?
Two Rival Companies having a Price War – Assume Companies “A” & “B” are in construction...
Two Rival Companies having a Price War – Assume Companies “A” & “B” are in construction business. They both are bidding to get part of a big construction job – let’s say building a long highway. The government who is giving out the contracts wants to work with at least 2 separate companies. This is the government’s condition to the 2 companies who are independently bidding on this job. •   If there is any collusion between the two companies on...
You have E. coli growing in the following flasks: Flask A-contains glucose and nitrate, incubated aerobically...
You have E. coli growing in the following flasks: Flask A-contains glucose and nitrate, incubated aerobically Flask B-contains glucose and nitrate, incubated anaerobically Flask C-contains only glucose, incubated anaerobically Predict the following after 24 hours of incubation at 37oC. A. Which flask will have the most number of cells? B. Which flask will have the least number of cells? C. Explain why you chose the flasks you did for each condition. Give specific features of metabolism to support your answer....
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT