Question

Market to Book	1.417			1.76
Price-earnings	13.249		25.56

   Market to Book          3.418                                                             5.45

Compare ratios to industry, analyze the performance. Which are growth firms which are value firms?

Compare ratios to industry, analyze the performance. Which are growth firms which are value firms?

Target Corp

Price-earnings 21.614    industry 16.04

                                                 Market to Book 1.417    industry 1.76

                                                                        WDC

Price-earnings 13.249    industry 25.56

                                                 Market to Book 3.418    industry 5.45

Answer 1

Basic understanding of Growth stock and value stock

Growth stock as the name suggests are the companies whose earnings are expected to grow at a rate above of the relative market. These shares are traded at high value because the investors may see these stocks as really promising and may be willing to pay more. At times, growth stocks may be seen as expensive and overvalued.

Growth stocks have high Price to Earnings and high book to price ratio.

Value stocks are the stocks of companies with good fundamentals but are out of favour in the market. These stocks are traded at comparatively bargained prices than the market and considered undervalued.

Value stocks have low price to earnings ratio and low price to book ratio.

Analysing the situation

Price to earnings ratio is the ratio of it's current price relative to it's per share earnings. It is higher the better.

Market to book ratio is the ratio of market value of a stock to net book value per share. It is also higher the better.

Target Corp

• Price to earnings ratio of Target Corp is higher than that of Industry's which means that the stock may be over valued and the investors must be willing to pay more to acquire such stock. It is a growth stock.
• Market to book ratio over 1 itself indicates that the stock is overvalued but as compared to the industry it is less which indicates that the investors are willing to pay more than company's actual book value but there are other competitive stocks present in the market.

WDC

• Price to earnings ratio is lower to industry's which means that the stock is undervalued and hence, it's a value stock and the investors doesn't expect much growth from it.
• Market to book ratio is also not as good as of the industry which again means that the market value of other competitive stocks present in the industry is more than their book value. This stock doesn't carry such repo among the investors.