Question

You notice that PepsiCo​ (PEP) has a stock price of $ 103.56 and EPS of $ 6.49. Its​ competitor, the​ Coca-Cola Company​ (KO), has EPS of $ 2.55. Estimate the value of a share of​ Coca-Cola stock using only this data.

Answer 1

The value of Coca-Cola share is $40.69

Step-by-step explanation:

In order to compute the value of Coca-Cola's stock, its closest rival,Pepsi's PE ratio can be used a proxy for Coca-Cola P/E ratio since they are keenly competitive rivals.

Pepsi P/E ratio=Price/Earnings per share

Stock price is $103.56

Earnings per share is $6.49

P/E ratio=$103.56/$6.49

P./E ratio=15.95686

Hence Coca-Cola share price is computed thus

P/E ratio=Price/Earnings per share

P/E ratio same as above

EPS is $2.55

15.95686=Price/$2.55

price=15.95686*$2.55

price =$40.69