Walmart's current earnings per share of $4.60 are expected to grow only at a rate of 2% per year for the next few years.Using a P/E ratio of 15, what is a reasonable value for a share of Walmart shares?

Question

Quizplus · Accepted Answer

To calculate the value of Walmart shares, we can use the formula: 
Value = EPS * P/E Ratio

Given EPS = 4.60 
Given P/E Ratio = 15

If we assume a growth rate of 2%, the EPS for the next year would be: 
EPS(next year) = EPS * (1 + growth rate) 
EPS(next year) = 4.60 * (1 + 0.02) = 4.692

Using the P/E ratio of 15, the value of Walmart shares would be: 
Value = EPS(next year) * P/E Ratio 
Value = 4.692 * 15 = 70.38

Therefore, a reasonable value for a share of Walmart shares is $70.38.

Walmart's Current Earnings Per Share of $4