Question: You are tasked with valuing Variant Technology using the PEG ratio. A variant is trading at $24 per share and reported earnings per share of

You are tasked with valuing Variant Technology using the PEG ratio. A variant is trading at $24 per share and reported earnings per share of $ 2.00 over the last four quarters. Analyst consensus is that these earnings will grow 10% a year over the next 5 years. The rest of the sector trades an average PE ratio of 15 and sector earnings are expected to grow 12% a year over the next 5 years.

a. Based purely on a comparison of PEG ratios, how under- or over-valued is Variant?

b. Now assume that you are told that Variant will be in stable growth after year 5, growing 3% a year forever. A variant is expected to have a return on equity of 12% and a cost of equity of 9% (for the next 5 years and beyond). Based upon these fundamentals, estimate the intrinsic PEG ratio for Variant.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a By comparing PEG ratios to the sector Variant is considered und... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Accounting Questions!

You are tasked with building VBA code to solve some sort of Excel problem that plagues you. This can be an academic problem or a work-related problem. On some level, it should be related to...

A stock is trading at $80 per share. The stock is expected to have a year-end dividend of $4 per share (D1 = $4), and it is expected to grow at some constant rate g throughout time. The stocks...

A stock is trading at $50. Which three-month call option would make a larger move if the stock goes from $50 to $52, one with a strike price of 55 orrnone with a strike price of $75?

SodaStream (www.sodastream.com) is the worlds leading manufacturer and distributor of sparkling water makers, which enable consumers to easily transform ordinary tap water into sparkling water and...

You are a financial analyst for a major investment bank. You are tasked with analyzing Stock A. Stock A just paid a dividend of $1.78 per share on its stock. The dividend on Stock A is expected to...

Organic Developments Ltd. (ODL) is an importer of organic produce from California. The company has been experiencing significant growth and is preparing to approach the bank for a loan to acquire...

Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2018,...

From the following September 2022 transactions for K Pullen you are required to: a prepare general journals using the comparative general journal format in the Workbook for both perpetual and...

Consider a publicly held company whose products you are familiar with. Some examples might include: Access the companys public website and search for its most recent annual report. (Some companies...

Final Paper: This is worth 40% of the course grade could be written Individually or in Groups, Maximum 3 students. A. Theme of the paper to be related with Human Resource Management (HRM) issues see...

7. The case discusses two events during the year that impacted the use of labor (and therefore the unfavorable flexible budget variance for direct labor): the 50,000 unit sales to the catalog company...

An integral component of the ability to make strategic decisions is to have an educated understanding of the environmental aspects that can impact an organization. The internal and external...

The day had gone surprisingly well considering all the activity at Central High School. Central was hosting the league track championships on the same day it was playing a baseball doubleheader...

1. Your father knows that last week you have learned jointly distributed random variables from Aybek Hoca. He has asked you to calculate certain distributions and expectations. Please let X denote...

There Were Ethical Dilemmas All Day Long," in your opinion, should a researcher conduct an ethnographic research study even if he or she acknowledges that he cannot be objective or unbiased during...

Govin two zero coupon bonds in a 50-50 portfolio one maturig in 3 another in 5 years what will be the performance using convexity duration if the yield drops 50 bps 1. NONE OF THE ABOVE 2. -1.82% 3....

What do you think?

You have been asked to describe the criteria for the NFPA 1600 standard. The current version of NFPA 1600 defines criteria for what two types of programs?

Describe pre-impact conditions according to the disaster impacts model.

Explain the similarities and differences between creating an EOP in a small city and a large city.

Assume the project profile model shown in Figure 3.10. Define the efficient frontier. The dotted lines represent the minimum return and the maximum risk that the company will accept. Which projects...

Suppose the information in Problem 2 was supplemented by importance weights for each of the four assessment criteria, where 1 = low importance and 4 = high importance: Assume, too, that evaluations...

A company has four project investment alternatives. The required rate of return on projects is 20%, and inflation is projected to remain at 3% into the foreseeable future. The pertinent information...