Company P/E (Trailing) Est. Stock Price
Family Dollar $60.646
Dollar General NA
Dollar Tree 14.732
99 Cent Only 58.645
Average 36.689 UNDERVALUED
We took the P/E ratio for The Dollar Tree and 99 Cents Only and added them up. We then divided by two to get the average to get 36.8. We then set this number equal to the trailing P/E of Family Dollar and solved to get an estimated share price of 60.65. When compared to FDO’s current stock price of 23.24, it shows that our company is undervalued when this method is used.
Forward Price to Earnings
The Forward Price to Earnings Ratio is a calculated by dividing Market Price per Share by the Expected Earnings per Share. It is important to note that the forecasted earning per share is used in this calculation.
P/E
(Forecast)
Company EPS (Forecast) P/E (Forecast) Est. Stock Price
Family Dollar $31.142 Dollar General NA Dollar Tree 2.45 11.707 99 Cent Only 0.35 25.971 Average 18.839 UNDERVALUED
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The industry average was calculated by using The Dollar Tree’s and 99 Cent Store’s average P/E forecast, which was 18.84. After taking the average, we set it equal to Family Dollar’s P/E forecast and solved for P by multiplying FDO’s P/E by the industry P/E. The equated share price using this method came out to be $31.14. When compared to FDO’s current share price of 20.23, it is assumed that the price is undervalued. This is because there is a significant difference in the two prices and the forecasted share price is larger than the actual.
FDO’s Forecast P/E = Industry Average P/E
FDO’s ‘P’ = Industry Average (P/B) * (FDO’s ‘E’)
Price to Book Value
The Price to Book compares the current stock price (market value) to the firm’s book value, so to calculate this ratio you take the current share price and divide it by the book value of the company at the end of the last quarter.
P/B
Company Est. Stock Price
Family Dollar $ 15.31
Dollar General NA
Dollar Tree 2.521804115
99 Cent Only 1.214428858
Average 1.868116486 OVERVALUED
After computing this ratio for our competitors and dividing that number by two (the number of competitors in the industry) we got the average of 1.87. We
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then took FDO’s P/B and set it equal to the industry average P/E and solved for P by multiplying industry average P/B by FDO’s B. This computation yielded a stock price of 15.31, when compared to FDO’S current share price, shows that FDO is overvalued.
FDO’s P/B = Industry Average P/B
FDO’s ‘P’ = (Industry Average P/B )*( FDO’s ‘B’)
Dividend Yield
The Dividend Yield is used to compute the dividends paid by a company compared to the share price. Since none of FDO’s competitors pay dividends, we cannot take an industry average to compute the dividend yield.
PEG
The PEG ratio is used to value a stock price relative to earnings growth. This can be calculated by taking the P/E ratio and dividing it by the earnings growth.
PEG
industry average 1.07
g 13.88%
PEG ratio $ 22.09 UNDERVALUED
By taking the PEG of our two competitors and dividing it by two we came up with an industry average of 1.07. The industry PEG was then set equal to the FDO’s PEG and solved for P by multiplying the industry average P.E.G by the
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FDO’s E*G to derive a price of 22.09, which makes the current price of 20.23 slightly undervalued.
FDO’s P/ (E/G) = Industry Average P.E.G.
FDO’s ‘P’ = (Industry Average P.E.G )* (FDO’s ‘E’ * ‘G’)
P/EBITDA
P/ EBITDA are used to calculate the estimated price per share for the firm. This is calculated by dividing the current price by the EBITDA.
P/EBITDA
Company Est. Stock Price
Family Dollar $3.971920172
Dollar General
Dollar Tree 0.058358087
99 Cent Only 0.279778393
Average 0.16906824 OVERVALUED
The first step to this computation was to take the average P/EBITDA for the industry. After the average was calculated, we set it equal to Family Dollar’s P/EBITDA and solved for P by multiplying the industry average P/EBITDA by FDO’s EBITDA. According to this calculation our estimated stock price was 3.97. When compared to our actual share price of 20.23, we can see that FDO is extremely overvalued using this ratio.
The industry average P/EBITDA of .169 was computed and set equal to FDO’s P/EBITDA to get an estimated stock price of 3.971. When compared to the current stock price of 20.23, it is assumed that FDO is overvalued.
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FDO’s P/EBITDA = Industry Average P/EBITDA
FDO’s ‘P’ = (Industry Average P/EBITDA )*( FDO’s EBITDA)
Price/ Free Cash Flows
The Price to Free Cash Flow model is used to compare the share price to the annual cash flows. To calculate P/FCF, take the current share price and divide it by the free cash flows.
P/FCF
Company Est. Stock Price
Family Dollar $37.86
Dollar General n/a
Dollar Tree 6.696806257
99 Cent Only 7.593902812
Average 7.145354534 UNDERVALUED
To find an estimated share price using this method, we first took the price to cash flows of our competitors, added them up and divided by two, to get an industry average of 7.15. We then set that equal to FDO’s P/FCF. We then multiplied the industry P/FCF by Family Dollar’s P/FCF to get 37.86, and when compared to FDO’s current share price of 20.23, the price is undervalued.
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FDO’s P/FCF = Industry Average P/FCF
FDO’s ‘P’ = Industry Average P/FCF * FDO’s FCF