Suppose that we observe the following information for a company that we are trying to value (ERIC) and two matching companies:
Ratio ERIC MATCH1 MATCH2
P/E 10 20 15
Please answer each question:
a. Based on this information, is ERIC undervalued or overvalued? Justify your answers.
b. If ERIC has EPS of $2.0, what would an appropriate target price be for ERIC using relative valuation?
