You are researching the valuation of the stock of a company in the food - processing industry.

Question:

You are researching the valuation of the stock of a company in the food - processing industry. Suppose you intend to use the mean value of the forward P/Es for the food - processing industry stocks as the benchmark value of the multiple. This mean P/E is 18.0. The forward or expected EPS for the next year for the stock you are studying is $ 2.00. You calculate 18.0 × $ 2.00 = $ 36, which you take to be the intrinsic value of the stock based only on the information given here. Comparing $ 36 with the stock’s current market price of $ 30, you conclude the stock is undervalued.
A. Give two reasons why your conclusion that the stock is undervalued may be in error.
B. What additional information about the stock and the peer group would support your original conclusion?

Stocks
Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing...

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