You are an equity analyst working at P&Q Fund Management Ltd. and are asked to analyse two
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You are an equity analyst working at P&Q Fund Management Ltd. and are asked to analyse two stocks listed on the Australian Securities Exchange (ASX). You are presented with the nancial information about the
You are an equity analyst working at P&Q Fund Management Ltd. and are asked to analyse two stocks listed on the Australian Securities Exchange (ASX). You are presented with the following financial information about the stocks and are required to advise the company’s financial planning team whether to buy or sell these securities.
| Firm/stock | ROE (%) | Dividend (cents per share) | Beta | Growth rate (%) | Earnings (cents per share) |
| ABB | 8.5 | 0.70 | 0.85 | 1.5 | 150 |
| CDC | 12.5 | 0.60 | 1.25 | 5.2 | 255 |
Current market prices of ABB and CDC shares are $16.50 and $18.50, respectively. All Ordinaries Index returns is 10.5% and 90-day Treasury Bill rate is 3.5%.
Required:
- Compute the fundamental P/E ratios
- What are your investment decisions: buy or sell? Explain why?
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