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CFA Level 2
Equity Investments

Intrinsic Value Calculation using P/E Ratio

Easy Equity Valuation Applications Market-based Valuation

Alice is analyzing the stock of Tech Innovators Inc., which operates in the burgeoning field of artificial intelligence. She notes that the average price-to-earnings (P/E) ratio for comparable companies in the AI sector is 20. Tech Innovators Inc. reported earnings of $5 per share last year. To estimate the intrinsic value of Tech Innovators Inc.'s stock using a market-based valuation approach, Alice multiplies the sector's average P/E ratio by the earnings per share of the company.

What intrinsic value per share does Alice derive for Tech Innovators Inc.?

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Correct15.6K
% Correct92%