Question

Given the information below for Seger Corporation, compute the expected share price at the end of 2017 using price ratio analysis. Assume that the historical average growth rates will remain the same for 2017. (Do not round intermediate calculations. Round your answers to 2 decimal places.)

Year	2011		2012		2013		2014		2015		2016
Price	$	94.60	$	100.50	$	99.20	$	96.70	$	118.20	$	133.60
EPS		3.30		4.01		4.81		5.51		7.70		8.70
CFPS		7.97		8.80		9.13		10.82		12.22		13.38
SPS		50.10		55.10		54.50		58.00		69.20		77.20

what's the share price

using P/E ratio

using P/CF ratio

using P/S ratio

Answer 1

(1) Using P/E ratio:

	2011	2012	2013	2014	2015	2016
Price	94.60	100.50	99.20	96.70	118.20	133.60
EPS	3.30	4.01	4.81	5.51	7.70	8.70
P/E = Price/EPS	28.67	25.06	20.62	17.55	15.35	15.36
Average P/E	20.43
EPS growth rates (in %)		21.52	19.95	14.55	39.75	12.99
Average growth %	21.75

Thus share price = 20.43*1.2175*8.70 = $216.45

(2) Using P/CF ratio:

	2011	2012	2013	2014	2015	2016
Price	94.60	100.50	99.20	96.70	118.20	133.60
CFPS	7.97	8.80	9.13	10.82	12.22	13.38
Price/CFPS	11.87	11.42	10.87	8.94	9.67	9.99
Average Price/CFPS	10.46
CFPS growth rates (in %)		10.41	3.75	18.51	12.94	9.49
Average growth %	11.02

Thus share price = 10.46*1.1102*13.38 = $155.36

(3): Using P/S ratio:

	2011	2012	2013	2014	2015	2016
Price	94.60	100.50	99.20	96.70	118.20	133.60
SPS	50.10	55.10	54.50	58.00	69.20	77.20
P/S	1.89	1.82	1.82	1.67	1.71	1.73
Average P/S	1.77
SPS growth rate (in %)		9.98	-1.09	6.42	19.31	11.56
Average growth %	9.24

Thus share price = 1.77*1.0924*77.20 = $149.52