We will compare the price by 2 methods- Earnings method and dividend method |
Earnings methods | |||
Using P/E ratio | |||
P/E growth rate- | |||
N-1 | N-2 | N-3 | |
P/E | 19.7 | 17.2 | 16.7 |
Growth rate | 8.61% | ||
P/E for N | 21.40 | ||
P/E for N+1 | 23.24 | ||
EPS for N+1 | 6.05 | ||
P/E*EPS | 140.60 | ||
Estimated share price | 140.60 | ||
CMP | 79.41 | ||
Conclusion | Share is undervalued | ||
Dividend method | |||
Using Gordon growth model | |||
ROE= | 15% | ||
Dividend growth rate- | |||
N-1 | N-2 | N-3 | |
Dividend payout | 0.13 | 0.13 | 0.12 |
Growth rate | 4.08% |
Since we don’t know the earnings in past 3 periods, we will consider that the growth is dividend payout ratio is the growth in dividend as well |
Price= | D1/(r-g) |
=0.82/(15%-4.08%) | 7.51 |
CMP | 79.41 |
Conclusion | Share is overvalued |
Note- the resulting share prices are extreme in value. This is not the case in real markets |
please show how you found it Use the information below and the CD&E model to determine...
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