Question

Given the information below for Seger Corporation, compute the expected share price at the end of 2017 using price ratio analysis. Assume that the historical average growth rates will remain the same for 2017. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Year Price EPS CFPS SPS 2011 $52.10 3.10 7.37 23.70 2012 $ 58.00 3.81 8.32 28.70 2013 $ 56.70 4.61 2014 $ 54.20 5.31 10.22 31.60 2015 $ 75.70 7.10 11.86 42.80 2016 $ 91.10 8.10 13.14 50.80 28.10 Share price Using P/E ratio Using P/CF ratio Using P/S ratio

Answer 1

Average P/E ratio for the company,

Average P/E ratio = sum of P/E ratio fro years 2011 through 2016 / 6

So, Average P/E ratio = ((52.1/3.1) + (58/3.81) + (56.7/4.61) + (54.2/5.31) + (75.7/7.1) + (91.1/8.1))/6 = 12.74

Growth in EPS from year 2011 to 2016 can be calculated using g = ((EPS2016/EPS2011)^(1/5)) - 1 = ((8.1/3.1)^(1/5)) - 1 = 21.18%

So EPS2017 = EPS2016*(1+g) = 8.1*1.2118 = $9.82

So, Price using EPS2017 and average P/E ratio = 9.51*12.74 = $125.06

Average P/CF ratio for the company,

Average P/CF ratio = sum of P/CF ratio fro years 2011 through 2016 / 6

So, Average P/CF ratio = ((52.1/7.37) + (58/8.32) + (56.7/8.77) + (54.2/10.22) + (75.7/11.86) + (91.1/13.14))/6 = 6.52

Growth in CFPS from year 2011 to 2016 can be calculated using g = ((CFPS2016/CFPS2011)^(1/6)) - 1 = ((13.14/7.37)^(1/6)) - 1 = 12.26%

So CFPS2017 = CFPS2016*(1+g) = 13.14*1.1226 = $14.75

So, Price using CFPS2017 and average P/CF ratio = 6.52*14.75 = $96.19

Average P/S ratio for the company,

Average P/S ratio = sum of P/S ratio fro years 2011 through 2016 / 6

So, Average P/S ratio = ((52.1/23.70) + (58/28.70) + (56.7/28.10) + (54.2/31.60) + (75.7/42.80) + (91.1/50.80))/6 = 1.92

Growth in SPS from year 2011 to 2016 can be calculated using g = ((SPS2016/SPS2011)^(1/6)) - 1 = ((50.80/23.70)^(1/5)) - 1 = 16.47%

So SPS2017 = SPS2016*(1+g) = 50.80*1.1647 = $59.17

So, Price using SPS2017 and average P/S ratio = 1.92*59.17= $113.55