1 Ameth Growers has historically had a PE ratio of 214 This

1.     Ameth Growers has historically had a P/E ratio of 21.4. This ratio is considered a good estimate of the future ratio. The firm currently has EPS of $2.34. These earnings are expected to increase by 3.4 percent next year. What is the expected price of this stock one year from now?

SHOW WORK

Solution

EP for next year=$2.34*(1+Growth rate)

=$2.34*1.034

=$2.41956

PE ratio=Market price/EPS

Hence stock price after one year=(21.4*2.41956)

=$51.78(Approx).