Question

Foraker Products is a manufacturer and distributor numerous food products. The company recently reported earnings per share of $6.60. Based on its recent price of $122.76, the company has a PE ratio of 18.6. Foraker Products is part of the food processing industry which has an industry PE ratio of 19.75. Using industry information, estimate the intrinsic value of Foraker Products’ earnings per share?

Answer 1

$130.35

Step-by-step explanation:

Given the information in indistry, we have:

• PE = 19.75
• Share price reported: $6.6

As we know the price earning (P/E) ratio can be used to determine the price of a stock with the following formula

Price = EPS × P/E ratio

=> The intrinsic value = 19.75 × 6.6 = $130.35

(It is suitable to find the intrinsic value when using the industry average price-earning ratio)