Should you still consider purchasing olympic stock in light

Reference no: EM13304710

As a stock portfolio manager, you spend most of your day searching for stocks that ap- pear to be undervalued. In the last few days, you have received information about two stocks that you are assessing-Olympic stock and Kenner stock. Many stock analysts be- lieve that Olympic stock and Kenner stock are undervalued because their price-earnings ratios are lower than the industry average. Olympic, Inc. has a PE ratio of 6, versus an industry PE ratio of 8. Its stock price declined recently in response to an announcement that its quarterly earnings would be lower than expected due to expenses from recent restructuring. The restructuring is expected to improve Olympic's future performance, but its earnings will take a large onetime hit this quarter.
Kenner Company has a PE ratio of 9, versus a PE ratio of 11 in its industry. Its earn- ings have been decent in recent years, but it has not kept up with new technology and may lose market share to competitors in the future.

Questions

1. Should you still consider purchasing Olympic stock in light of the analysts' argu- ments about why it may be undervalued?

2. Should you still consider purchasing Kenner stock in light of the analysts' arguments about why it may be undervalued?

3. Some stock analysts have just predicted that the prices of most stocks will fall because interest rates are expected to rise, which would cause investors to use higher required rates of return when valuing stocks. The analysts used this logic to suggest that the present value of future cash flows would decline if interest rates rise. The expected in- crease in interest rates is due to expectations of a stronger economy, which will result in an increased demand for loanable funds by corporations and individuals. Do you believe that stock prices will decline if the economy strengthens and interest rates rise?

Reference no: EM13304710

Questions Cloud

What is the concentration of phenol vapor in the exhaust : A plastic-manufacturing plant emits 1,700 scfm of exhaust at 200oC and 90 kPa. The exhaust (consisting of mostly air) contains 9 ppm phenol vapor (C6H5OH). What is the concentration of phenol vapor in the exhaust in µg/L

Calculate enthalpy that has been added by burning fuel : Exhaust gas from a chemical process flows at a rate of 8,000 actual cubic feet per minute (acfm) from point A at 250°F and 1 atm pressure. It flows through a circular duct to a fan

Compute the energy of the first photon emitted : You are shining ultraviolet light on a gas of an unknown element. You know that an electron starts in a ground state with an energy of -18.20 eV. What is the energy of the first photon emitted

Coal prices moved in sympathy with oil prices : The oil price shock of 1980 sent gasoline prices sharply higher. Coal prices moved in sympathy with oil prices, with the result that coal companies earned pure economic profits

Should you still consider purchasing olympic stock in light : Should you still consider purchasing Olympic stock in light of the analysts' argu- ments about why it may be undervalued?

Find the position of the resulting image : A concave mirror has a focal length of 20 cm. What is the position (in cm) of the resulting image

Calculate the excersie value of the firm warrants : Calculate the excersie value of the firm's warrants if the common sells at each of the following prices.

Calculate the work done by gases with constant specific heat : The gases are expanded to 140 kPa with a reversible adiabatic process. Calculate the work done by the gases, assuming they can be approximated by air with constant specific heats.

What is the convertible issue conversion ratio : Peterson Securities recently issued convertible bonds with a $1000 par value. The bonds have a conversion price of $40 a share. What is the convertible issue's conversion ratio?

User Account

All Pages