You have a new colleague, Robert, who is a recent graduate and now a junior financial analyst. Robert has been following a new meat substitute company, Plant Protein, which has performed strongly since its recent IPO. The company is showing excellent growth potential, and Robert would like your help in assessing its investment potential.
Plant Protein has 8 million shares outstanding and pays a nominal annual dividend of $0.06 per share.
Plant Protein’s sales record in the past five years is as follows:

Yeart	Sales in millions
2017	12.5
2018	14
2019	18
2020	24.2
2021	30.8

Robert’s estimates of Plant Protein’s future performance are as follows:

Expected net profit margin	14%
estimated annual dividends per share	0.06
number of common stocks outstanding	8 million
P/E ratio at the end of 2022	30
P/E ratio at the end of 2023	45

a) Find the average annual rate of growth in sales over the past five years. Assume sales of $9.5 million in 2016.

b) Based on the average annual rate of growth in sales calculated, forecast revenues in 2022 and 2023.

c) Determine Plant Protein’s both net earnings and EPS in 2022 and in 2023.

d) Determine the expected future price of the stock at the end of 2023.

e) Based on an assessment of internal company factors as well as external market factors, Robert believes that a required rate of return of 22% would be appropriate for Plant Protein.
It is the end of 2021, and Robert is considering buying the stock now and then selling it at the end of 2023. Calculate the ‘fair’ share price of Plant Protein based on its intrinsic value and using Robert’s forecasts for 2022 and 2023.

f) If Plant Protein’s share price is currently $28.75, should Robert invest in the stock? Explain why.

Answer rating: 100% (QA)

a The average annual rate of growth in sales over the past five years is 112 sales were 125 million ... View the full answer