The answer to Financial Management
Based on the analysis you did on CPI's valuation and in the context of the valuation of the major consumer products companies (look at the price-to-earnings ratio of CPI versus the competitors), do you believe analysts think your firm is undervalued? Could that perception change if the economic climate changes? Do you believe CPI's valuation is being impacted today because the firm is only a regional player? What is the basis for your conclusion?
Undervalued means that the stock is selling for a lower price than it should be based on the firm's financial ratios including the P/E ratio. A low P/E/ ratio indicates a low price compared to earnings so a financially healthy firm with a low P/E ratio may be undervalued. What else might a low P/E mean? What are some reasons a firm may be undervalued?
If CPI had 1,000,000 shares outstanding, earnings of $15M, and a stock price of $18 a share; what would its P/E ratio be? How would CPI's EPS and P/E ratio compare to competitor's EPS and P/E ratio and would you consider CPI stock to be undervalued? Why or why not?