Graded Discussion Week 5
Please note that if you edit your initial response (Original Post), you will not get credit for the Original Post. The discussions are set up as “Must post first”.
EVALUATION OF P/E RATIO
Step 1: Read the articles. These articles contain examples of evaluating P/E ratio. You will be using these examples to answer the questions listed at the bottom of the topic description.
You must use the company assigned for you for the project.
Please also note that your answers should be written in your own words. Don’t use quotes from the articles.
You are expected to make your own contribution in a main topic as well as respond with value added comments to at least two of your classmates as well as to your instructor.
For this question we will be using P/E ratio.
To find a company’s P/E ratio, use www.morningstar.com , enter the desired stock symbol to get to the company’s front page. The P/E ratio is listed on the company’s front page.
Compare the P/E ratio of your company with the industry average or with major competitors. Is there a difference between these numbers? Is the stock overvalued, undervalued, or properly valued? Why? In accordance with your findings, is it reasonable to buy the stock? Please explain your answers.
Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.
Post by Tyler Hickman
My company is Target Corp. which is known as a great stock to have in the market. The competition for Target would be Walmart Inc., Dollar Tree Inc., as well as Dollar General Corp. Price-to-Earning Ratio is for valuing a company’s current share price relative to its share earnings per share. It can be used to compare a company to another company or the history of the company to determine if it is a good or bad share or if the company is going the right direction. It is always good to have a P/E ratio otherwise the company is having no earnings or losing money. When a company has a high P/E ratio then it is looked at to have high earnings in the future or potentially overvalued. When a company has a low P/E ratio then it is the opposite, the company could be undervalued or is doing better than the past of the company.
Target Corp. has a P/E ratio of 21.84 which is higher than some of the competition and lower than others. Dollar Tree Inc. is a P/E ratio of 20.71, Walmart Inc. has a ratio of 29.51 and Dollar General Corp has a P/E ratio of 20.32. Target is pretty average compared to the competition. I would say that at this time Target Corp. would be overvalued due to the price of the stock trading at $205.76 with a P/E ratio of 21.84 compared to one of the top competitors, Walmart Inc. trading at the price of 140.16 with a ratio of 29.51. This would mean that you would have to spend less money to make money with Walmart Inc. than Target Corp. Dollar Tree inc. is the same way with a price per share at $117.02 with a P/E ratio of 20.71 where this would be a better deal for making money back than Target. The one competitor that Target Corp. beat is Dollar General Corp. who has a higher price than Target and a lower P/E ratio.
I do find it reasonable to buy Target Stock at this point. It is a safe option that makes money with not much chance of failing. The price is on the higher side per share but can make money as well.
Fernando, J. (2021, April 09). Price-to-earnings ratio – p/e ratio. Retrieve from https://www.investopedia.com/terms/p/price-earningsratio.asp
Morningstar, Inc. (n.d.). Retrieved from https://www.morningstar.com/stocks/xnys/tgt/analysis
POst by Craig Steward
Microsoft has a P/E ratio of 31.75 compared to the computer software industry average of 38.51. There is a difference between the numbers, as Microsoft’s P/E ratio is lower than the industry average. Since Microsoft’s P/E ratio is lower than the industry average’s P/E ratio, it is therefore undervalued. According to the articles, the P/E ratio alone will not tell you if it is worth buying. They suggest looking at the PEG ratio and EV/EBITDA to get the stock’s complete picture. The PEG ratio and EV/EBITDA are 2.35 and 24.80, respectively. It is not reasonable to buy the stock based on those numbers, as they suggest the stock is overpriced.
I learned about a new website to get financial information on companies. I have never heard of morning star.com before, and it will be a new tool that I will use when investing in companies. I learned what the P/E ratio is and calculated it by dividing the share price by earnings per share. If the P/E ratio is higher than the industry average, then the stock is overvalued. If the P/E ratio is lower than the industry average, then the stock is undervalued. Looking at the P/E ratio alone does not tell the buyer if the stock is worth buying. The buyer should look at the PEG ratio and EV/EBITDA. If the PEG and EV/EBITDA values are high, the stock is likely overpriced and should not be purchased.
I can use the information in this discussion in my future workplace. If I have clients who want to buy stocks, I can look at the P/E ratio, PEG ratio, and EV/EBITDA to determine if it is worth buying. Then I can properly advise the clients on potential risk if the stock is purchased or if it is an excellent stock to buy.
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