question archive Suppose that the average P! E multiple in the healthcare industry is 21
Subject:FinancePrice:9.82 Bought4
Suppose that the average P! E multiple in the healthcare industry is 21. EYE Imaging is expected to have an EPS of $1.30 this year. Operating margins are about 10%. The Company's operating margins and growth rates are similar to the rest of the industry. X'f'Zs stock price was up about 5% last year. The value of XYZ Imaging stock, using a relative value approach, should he _____ . {3 $?2.oo C} $318121 {3 ssaoo C} There is not a correct answer listed {3 $31.50
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Step-by-step explanation
Given that the EPS is expected to be $1.80 this year with an average peer P/E multiple of 21 times.
Operating margins being 10% are not relevant to this valuation, since EPS is derived after considering the net margin (net profit), which takes into account both operating and non-operating margins.
The stock price being up by 5% is also not material, since it merely points towards an increase in stock value during the preceding year, which could be because of various reasons.
Therefore, using the relative multiple approach, the value of the stock shall be 21 * $1.80 = $37.80, being Option B
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