Question

company XYZ closed at $107.63 per share with a P/E ratio of 10.26. answer the following questions. a. how much were earnings per share? b. does the stock seem overpriced, underpriced, or about right given that the historical P/E ratio is 12 - 14?

Answer 1

The earnings per share (EPS) of company XYZ were calculated to be $10.49. By comparing the P/E ratio of 10.26 to the historical average of 12 to 14, it appears that company XYZ's stock could be underpriced.

Step-by-step explanation:

To calculate the earnings per share (EPS) for company XYZ with a P/E ratio of 10.26 and a closing stock price of $107.63 per share, we divide the closing stock price by the P/E ratio:
EPS = Closing Stock Price ÷ P/E Ratio
EPS = $107.63 ÷ 10.26
EPS = $10.49
Therefore, the earnings per share for company XYZ were $10.49.

Gauging whether the stock is overpriced or underpriced involves comparing the P/E ratio of company XYZ to the historical P/E ratio range of 12 to 14. With a P/E ratio of 10.26, company XYZ's stock is priced below the historical average, possibly indicating that it is underpriced. This assessment, however, should consider other factors such as the company's growth prospects, industry health, and market conditions.