Lester’s details Trailing CF/share = 2 P/CF = 23.90 Trailing FCFE/share = 0.36 P/FCFE = 132.78 5-year Growth Forecast = 17.5% Beta = 1.22 Home Decor’s details Trailing CF/share = 1.36 P/CF = 20.88 Trailing FCFE/share = 0.99 P/FCFE = 28.69 5-year Growth Forecast = 22.2% Beta = 1.36 Options A. Only one stock is relatively OVERVALUED B. both stocks are relatively UNDERVALUED C. Both stocks are relatively OVERVALUED Choose & Explain!
I would say 1 company - Lester is relative overvalued. Choice A. look at the errata for schweser for this question. Page: 283 - Correction Question 12: The correct answer is A. The answer explanation is correct. ( Posted: 2009-01-13)
YEAAAAAAAA! You made my day. I was wondering how in the world can ‘BOTH stocks’ be ‘RELATIVELY’ undervalued for the past 30 mins. Thanks cpk!
I actually thought this was a lousy question by Schweser. In relative valuation, a stock can only be relatively undervalued or overvalued so C and D are definitely wrong. If sTock A is relatively undervalued as compared to B, then of course B is relatively overvalued as compared to A
Very Correct - I just did a A on that one, the moment I saw it. but after checking the ans, they had B on it. So just needed to confirm. Was wondering what hypotheotical 3rd hidden benchmark they were comparing to, to assume BOTH are relatively undervalued. lol