Reference no: EM132566266
Identify two companies operating in the same industry. Find their forward P/E ratios (Stock Price per share divided by Earnings per Share expected next year) and expected annual growth in EPS for the next five years.
Instructions
To find the P/E and growth estimates:
-Go to Yahoo! Finance finance.yahoo.com
-.Using the search bar at the top of the page, type in the name of a company and select it.
-Under the current price, there is a horizontal line of blue links that act as tabs.
-For the P/E number:
-Click on the Statistics tab.
-Under the heading Valuation Measures, look for the number to the right of Forward P/E. That is the P/E ratio. Note: The PEG ratio under the statistics tab adjusts for growth by dividing the P/E ratio by the growth rate. Typically the PEG ratios will be more aligned than the P/E ratios.
-For the growth estimates:
-On the same page, click on the Analysis tab.
-Scroll down to the section called Growth Estimates, which may be the last tab.Using the data you've retrieved, answer the following questions:
-What are the companies, their P/Es, and expected growth rates?
-We expect to pay more per share for earnings that are growing at a faster rate. Does the company with the higher expected growth rate also have the higher P/E ratio? If not, are there other factors that might explain the difference?
-Provide a brief justification for the company with the higher P/E being more expensive.