Question

For the 3 companies, what conclusions can you make about the trends?

		2014	2015	2016	2017	2018
Stock Price
	Ford	$15.50	$10.95	$10.61	$11.62	$7.52
	General Motors	$29.67	$29.49	$32.16	$42.66	$33.46
	Honda	$26.70	$29.40	$27.70	$22.89	$26.44
PE Ratio
	Ford	15.50	6.93	9.23	6.02	8.17
	General Motors	17.98	4.99	5.36	n/a	6.05
	Honda	8.67	11.95	12.31	4.41	7.07
EPS
	Ford	$1.00	$1.58	$1.15	$1.93	$0.92
	General Motors	$1.65	$5.91	$6.00	-$2.60	$5.53
	Honda	$3.08	$2.46	$2.25	$5.19	$3.74

Answer 1

PE ratio = Market price per share / Earnings per share

PE ratio helps investors analyze how much investor should pay for a stock based on it's earnings. A company with high PE ratio usually indicated positive future performance and investors are willing to pay more for this company's share.

i) Ford :

Stock price of Ford company is in decreasing trend & at the same time earnings are in increasing trend upto year 2017 but in 2018 it suddenly got decreased. Further PE ratio is decreasing approx 50% rate over years.

This indicates inefficient performance of Ford.

ii) General Motors :

General motors price & earnings are in increasing trend except in year 2017. The trends are in such a way that it results into decrease in PE ratio approx. 3 times than it was in 2014.

This results into weak performance of General Motors in terms of PE ratio.

iii) Honda :

Honda's stock price & earnings are in opposite trend. When stock price increases then earning decreases & vice versa. PE ratio is increasing upto year 2016 & then lower PE ratio in 2017 again increased in 2018. The trends of PE ratio shows an average rate.

This indicates average satisfactory performance of Honda.