Calculate the share price based upon multiple

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Chemists-R-Us Ltd., a large pharmaceutical chain, had sales per share of $122 in 2019, on which it reported earnings per share of $2.45 and paid a dividend per share of $1.12. The company is expected to grow 6% in the long term and has a beta of 0.9. The current risk-free rate is 7% and the market return is 12.5%.

-Estimate the appropriate price/sales multiple for Chemists-R-Us Ltd. and calculate the share price based upon this multiple.

-You observe the shares are currently trading for $34 per share. Assuming the growth rate is estimated correctly, what would the profit margin need to be to justify this price per share?

-Given your answer to part b, do you think the market's valuation of $34 is reasonable? Explain your answer.

Reference no: EM132554368

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