Task
You are required to choose one company in one of these i.e. Coke, Walmart, Pepsi and J.P Morgan and then go ahead to determine the Price is Right for the selected company.
Steps that you should follow:
- Visit this site.
- Enter the company you selected in the box, then select the stock symbol of your company and note down the price of the stock.
- Go ahead, select Price ratios tab, and note current price to earnings.
- Use PE valuation model to establish the perfect price for the stock. Multiply average P/E ratio in the industry by stock is EPS so that you can estimate intrinsic stock price.
Questions answered
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Comparing current stock price is the stock under or overvalued.
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What do analyst recommend on the stock (selling, buying or holding).
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Do you side with the company? Can you purchase the stock and state the reason.
The Price is Right Essay on Pepsi
The selected company is Pepsi. The company’s stock market information is as shown below:
| Current Stock Price | $134.03 |
| Stock’s Earning per Share (EPS) | $8.86 |
| Price to Earnings Ratio P/E (for food processing industry) | $21.81 |
(Yahoo Finance, 2019)
Intrinsic Price of the stock = Industrial average P/E ratio x stock’s EPS
= 21.81 x 8.86
= $193.24
Is this stock overvalued or undervalued when compared to the current stock price?
Based on the above analysis, the Pepsi stock are undervalued. Based on the current stock price, Pepsi stocks price is $134.03 and the price has been ranging within this range. This is quite low compared to the computed intrinsic price of the stock which is $193.24. The evaluation demonstrates that Pepsi stock price is undervalued.
What are the analysts’ recommendations for this stock (buy, sell, or hold)?
I would recommend those who have Pepsi stock to hold and those who do not have them and considering purchasing them to buy and hold. Pepsi stocks are currently undervalued and hence their price in the market will shoot a great deal when their true value is realized. This means, those who purchased the stock during this time when it is undervalued are likely to register high profit compared to those who will purchase it later. Thus, buying and holding to wait for that time when the stock true value is realized will be the best option.
Do you agree with them? Would you consider purchasing this stock? Why?
I do agree with this analysis that Pepsi stock is are undervalued. The stock is likely to give an investor a high profit. However, even without considering that, Pepsi stock offer high earning per share. I would thus purchase this stock since, even when its true value is not realized, I will still benefit as an investor. The possibility of realizing high profit after the realization of the true value if the stock will be an added advantage and hence this stock is worth any investor’s input
References
Yahoo Finance. (2019). PepsiCo, Inc. (PEP). Retrieved from https://finance.yahoo.com/quote/PEP/
