You have the following information on Proctor & Gamble (PG) and Johnson & Johnson (JNJ):
PG: P-E (which is Price/EPS) = 22.42
JNJ: EPS = 3.14
a. Using PG as a comparable, estimate JNJ's price: ______________
b. The current price of JNJ is about $69.50 per share. How does your estimate compare to the current price (high, low or about the same)? ___________________________
c. What is one problem with using a comparable (such as PG) to estimate the price of another firm (such as JNJ)?
a. Using PG as a comparable, estimate JNJ's price.
We have used PE ratio of PG as it is comparable.
b. The current price of JNJ is about $69.50 ...
The solution describes the steps to estimate the price of given stock by using comparable. It also discusses the problems of using this method.