Company |
Stock Price |
Earnings per Share |
P/E Ratio |
General Motors Co. |
40.42 |
2.35 |
|
Toyota Motor Corp. |
119.85 |
11.34 |
|
Nissan Motor Co. |
17.87 |
2.15 |
|
Ford Motor Co. |
1.42 |
Please Round Answer to 2 Decimal Places.
P/E Ratio stands for Price / Earnings Ratio which is equal to:
Stock Price / Earnings Per Share.
The PE ratios for the comparable companies or peers of Ford are as follows:
General Motors Co.: 40.42/2.35 = 17.20
Toyota Motor Co.: 119.85/11.34 = 10.57
Nissan Motor Co.: 17.87/2.15 = 8.31
Ford's value of stock (i.e. stock price can be ascertained by
multiplying Ford's P/E Ratio with its earnings. However, the exact
P/E ratio of Ford is unknown and has to be estimated. An ideal way
of doing it is to take the average P/E ratio of its peers which is
:
(17.20 + 10.57 + 8.31) / 3 = 12.02.
If 12.02 is the P/E ratio of Ford, then Ford's stock can be valued at :
P/E Ratio * Earnings Per Share = 12.02*1.42 = 17.07
Note that in the example above, the arithmetic mean of P/E ratio
of Ford's peers is used to arrive at the estimated P/E ratio of
Ford. However, an investor might look at other averages as well
instead of arithmetic mean. One such average could be median.
The median P/E ratio of peers is middlemost value in the array
8.31, 10.57, 17.20 which is 10.57. If median is considered as
estimated P/E ratio of Ford, then Ford's stock is valued at
10.57*1.42 = 15.01
In short, Ford's stock deserves a valuation in the range of 15 to 17. But valuations are subjective in the practical world and hence there could be multiple values that could be arrived at.
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