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Company A shares are currently trading at $20 per share. A survey of Wall Street analysts reveals that EPS expectations for Company A for the full year 2014 are $1.50 per share. Company A has 200 million diluted shares outstanding. Company A’s major competitors are trading at an average share price / 2014 Expected EPS of 15.0x.
Using the comparable company analysis valuation method, Company A shares are:_______.
a. $2.50 per share overvalued
b. $2.50 per share undervalued
c. Need more information
d. Appropriately priced

Respuesta :

Tundexi

Answer:

b. $2.50 per share undervalued

Explanation:

If the Company A major competitor has Share Price / EPS of 15X. Then, it means that the share price of company A should be = EPS * Competitor Share Price / EPS = $1.50 * 15 = $22.50

But, the share price of company A is $20.

So, we concluded Company A shares are Undervalued by $2,50 ($22.50 - $20).

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