You are examining the wide differences in price-sales ratios that you can observe among firms in the retail store industry, and trying to come up with a rationale to explain these differences:

Per-Share Expected Company Price Sales Earnings Growth Beta Payout Bombay Co. $38 $ 9.70 $0.68 29.00% 1.45 0%

Bradlees $15 $168.60 $1.75 12.00% 1.15 34%

Caldor $32 $147.45 $2.70 12.50% 1.55 0%

Consolidated $21 $ 23.00 $0.95 26.50% 1.35 0%

Dayton Hudson $73 $272.90 $4.65 12.50% 1.30 38%

Federated $22 $ 58.90 $1.40 10.00% 1.45 0%

Kmart $23 $101.45 $1.75 11.50% 1.30 59%

Nordstrom $36 $ 43.85 $1.60 11.50% 1.45 20%

Penney $54 $ 81.05 $3.50 10.50% 1.10 41%

Sears $57 $150.00 $4.55 11.00% 1.35 36%

Tiffany $32 $ 35.65 $1.50 10.50% 1.50 19%

Wal-Mart $30 $ 29.35 $1.05 18.50% 1.30 11%

Woolworth $23 $ 74.15 $1.35 13.00% 1.25 65%

a. There are two companies that sell for more than revenues, the Bombay Company and Wal-Mart. Why?

b. What is the variable that is most highly correlated with price-sales ratios?

c. Which of these companies is most likely to be over or undervalued? How did you arrive at this judgment?