Apple\'s common stock is currently trading at $130 per share. The latest quarter
ID: 2728119 • Letter: A
Question
Apple's common stock is currently trading at $130 per share. The latest quarterly earnings of Apple showed that the company earned $7 per share (i.e., EPS) in Q1, 2015. Most analysts expect this EPS to hold for Apple in 2015. Assume that Google and Facebook, two of Apple's potential competitors in US, are currently trading at P/E ratio (i.e., price/earnings) of 30 and 40, respectively. What would you say about the valuation of Apple's stock currently relative to Google and Facebook using only the P/E multiples apparoch?
I would never use the P/E multiples approach because it is totally flawed in efficient financial markets.
The P/E mutiples approach would suggest that Apple is currently undervalued relative to Google and Facebook.
The P/E mutiples approach would suggest that Apple is currently overvalued relative to Google and Facebook.
The P/E mutiples approach would suggest that Apple is currently correctly-priced relative to Google and Facebook.
1.I would never use the P/E multiples approach because it is totally flawed in efficient financial markets.
2.The P/E mutiples approach would suggest that Apple is currently undervalued relative to Google and Facebook.
3.The P/E mutiples approach would suggest that Apple is currently overvalued relative to Google and Facebook.
4.The P/E mutiples approach would suggest that Apple is currently correctly-priced relative to Google and Facebook.
Explanation / Answer
P/E ratio (Apple) = Current market price/EPS for the year
= $130/(7*4 Quarters)
= 4.64
Answer:
As the P/E ratio of Apple (4.64) is lower than the Google(30) and Facebook(40), The P/E multiples approach would suggest that Apple is currently undervalued relative to Google and Facebook.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.