Calculate the price - earnings ratio, Business Economics

Yanni works for Woolworths Limited (WOW) and owns 5,000 Woolworths shares that he received in lieu of a bonus five years ago. Woolworths has reported an NPAT of $1.294 billion and currently has 1.207 billion shares on issue. Its current market price is $26.50.

a)  Calculate the price/earnings ratio for Woolworths based on its reported NPAT and current market price (to one decimal place).

b)  Yanni has received investment research from an equities broker that forecasts WOW's EPS for the coming financial year to be $1.485 per share. The current industry average P/E ratio is 14.05x. Calculate WOW's fair price based on the earnings forecast.

c)  Discuss whether, based on your calculations, WOW currently warrants a 'buy', 'hold' or 'sell' recommendation. Identify and explain other general and company-specific factors that may be relevant to making an investment decision about this stock. You must discuss some performance drivers that are specific to Woolworths.

Posted Date: 2/23/2013 3:10:25 AM | Location : United States

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