Question

Discussion,Choose valuation method, apply it to your Fortune 1000 project organization (one company). Utilizing Using the valuation method, look back over the past 3-5 years and determine if the stock price is too high / too low or priced right. (Calculate EPS or P/E ratio)

https://www.geolounge.com/fortune-1000-companies-2014-list/

https://www.sec.gov/edgar/searchedgar/companysearch.html

https://finance.yahoo.com/

Answer 1

Answer:

The Fortune 1000 project organization company we have selected is Walmart Inc.

Using Relative Valuation method and on analysing P/E ratio we found:

Walmart Inc (NYSE:WMT) trades with a P/E of 54.1x as of today, which is higher than the industry average of 21.3x

Calculation

The P/E ratio is the most widely used ratio in the valuation of stocks.

Walmart Inc's P/E Ratio for today is calculated as:

P/E Ratio	=	Share Price	/	Earnings per Share (Diluted) (TTM)
	=	94.13 / 1.74
	=	54.10 times

On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as WMT, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use. WMT’s P/E of 54.1 is higher than its industry peers (21.3), which implies that each dollar of WMT’s earnings is being overvalued by investors. This multiple is a median of profitable companies of 25 Consumer Retailing companies in US including HF Foods Group, Metro and Innovative Food Holdings. You could think of it like this like the market is pricing WMT as if it is a stronger company than the average of its industry group.

Screenshot below shows the last 5 years EPS and P/E for Walmart Inc:

In 2018, the growth of EPS has declined drastically but the stock is trading at a very high average P/E ratio.

On considering, the industry P/E of 21.3x and Walmart's EPS of $1.74, the suitable P/E should be around:

Price of walmart stock (as of today) = 21.3 * $1.74 = $37.06

While at the time of analysis the stock was trading at $94.13

On doing the analysis, we found that the Walmart Inc stock is trading at a quite high price.