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Example: Comparison with broad-based index You are analyzing three large-cap US stock issues (A, B...

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Example: Comparison with broad-based index You are analyzing three large-cap US stock issues (A, B & C) with approximately equal earnings growth prospects and risk. As one step in your analysis, you have decided to check valuations relative to the S&P 500 Composite Index. The following table shows comparison with an Index Multiple (Prices and EPS in US Dollars; as of 31 March 2013): Measure Stock A Stock B Stock C S&P 500 23 50 80 1569.19 Current price P/E 12.5 25.5 12.5 17.9 Five-year average P/E (as percent of S&P 500 P/E) 80 120 105 Note: The last row shows how a stock's P/E compared with S&P 500 P/E over past 5 years. Q: Explain which stock appears relatively undervalued when compared with the S&P 500

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