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10 June, 05:49

You notice that PepsiCo (PEP) has a stock price of $ 103.56 and EPS of $ 6.49. Its competitor, the Coca-Cola Company (KO), has EPS of $ 2.55. Estimate the value of a share of Coca-Cola stock using only this data.

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  1. 10 June, 06:17
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    The value of Coca-Cola share is $40.69

    Explanation:

    In order to compute the value of Coca-Cola's stock, its closest rival, Pepsi's PE ratio can be used a proxy for Coca-Cola P/E ratio since they are keenly competitive rivals.

    Pepsi P/E ratio=Price/Earnings per share

    Stock price is $103.56

    Earnings per share is $6.49

    P/E ratio=$103.56/$6.49

    P./E ratio=15.95686

    Hence Coca-Cola share price is computed thus

    P/E ratio=Price/Earnings per share

    P/E ratio same as above

    EPS is $2.55

    15.95686=Price/$2.55

    price=15.95686*$2.55

    price = $40.69
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