Question

On a particular date, FedEx has a stock price of $89.27 and an EPS of $7.11. Its competitor, UPS, had an EPS of $0.38. What would be the expected price of UPS stock on this date, if estimated using the method of comparables?

Answer 1

$4.77

Step-by-step explanation:

If FedEx has a stock price of $89.27 and an EPS of $7.11.

Its competitor, UPS, had an EPS of $0.38.

The expected price of UPS stock on this date, if estimated using the method of comparables is done by computing the Price / Earnings ratio or multiples.

For FedEx

Price = $89.27

EPS of $7.11.

Therefore P/E ratio = 89.27/7.11 = 12.55

if estimated using the method of comparables, we assume that the P/E ratio can be used to determine the Price of UPS shares because they operate in the same industry

Therefore UPS share price = P/E ratio x EPS = 12.55 x $0.38 = $4.77