Question

XYZ has a current market price of $30.00 per share with earnings last year of $2.50 per share, a beta of 1.1 and a dividend of $1.25. Using the price/earnings multiplier, what price do you expect the stock to trade at if earnings per share next year are $3.00

Answer 1

The expected price for the stock is $36

Step-by-step explanation:

The price earning multiple is a measure that provides the information regarding how much are the investors willing to pay for each $1 of earnings per share. The formula for price earnings multiple is,

P/E = Price per share / Earnings per share

Based on the information, the P/E multiple for XYZ is,

P/E = 30 / 2.5 = 12

Using this price / earnings multiplier, we calculate the price at which the stock will trade as,

12 = Price per share / 3

12 * 3 = Price per share

Price per share = $36