Question

You are a financial analyst with BigWhale Fmd. Your specialty is in analyzing FAANG stocks. The FAANG stocks are: . Facebook . Amazon . Apple . Netflix . Alphabet (Google You decided to use relative valuation to see if each one of them is fair valued, undervalued, or overvalued. Specifically, you want to compare that PE ratios with the average PE ratios of the 5 firms 1. Use Yahoo Finance to find the PE ratios for each firm after market close (4pm) for a certain day, caleulate the average PE ratio for these firıns, and compare individual firm's PE ratio with the average, and state whether each firm is fair valued, ndervalued, or overvalued according to this criteria. 2. Suppose you believe the average PE ratio reflect fair valnation, how nuch should Apple stock he selling at the moment?

Answer 1

1. Generally a high PE could mean that a stock's price is high relative to earnings and possibly overvalued. Conversely, a low PE might indicate that the current stock price is low relative to earnings.

PE of Netflix and Amazon are higher than average PE indicating these two stocks are overvalued. Similarly other three companies Facebook, Apple, Alphabet(Google) PEs are lower than average PE ratio, indicating these three are undervalued.

Price of Mar 22, 2019	Facebook	Amazon	Apple	Netflix	Alphabet(Google)
Price	184.82	1857.52	186.6	354.27	1154.44
EPS	6.74	23.95	11.89	2.8	39.86
PE	27.42	77.56	15.69	126.53	28.96
Average PE ratio					55.23

2. Considering average PE ratio reflect the fair valuation.

Apple stock selling price at moment =Average PE*Apple EPS=55.23*11.89=656.71

Apple stock selling price at moment =656.71

Thanks