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CFA Level 1
Equity Investments

Valuing XYZ Corporation Using Price Multiples

Hard Equity Valuation Techniques Price Multiples

XYZ Corporation is a publicly-traded company known for its innovative technology products. As an equity analyst, you are tasked with valuing XYZ Corporation using price multiples.

You find that the average Price-to-Earnings (P/E) ratio for companies in the technology sector is 25x, while XYZ Corporation’s trailing twelve months (TTM) earnings per share (EPS) is $4.00. Additionally, XYZ Corporation has a P/E ratio of 30x based on its forward earnings, which are projected to be $5.00 per share.

Using the P/E based valuation method, what would be the justified stock price of XYZ Corporation using the sector's average P/E ratio?

Hint

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% Correct76%