We want to find the price per share of a new auto parts company (called NAC) that is about to go public. We know that NAC is very similar to AutoZone, Genuine Parts Co. and Advance Auto Parts. AutoZone’s current P/E is 16.37, Genuine Parts’ current P/E is 17.95, and Advance Auto Parts’ current P/E is 18.16. NAC’s annual earnings per share (EPS) is $2.18. Use the market multiples method to find the price per share of NAC.
P/E ratio = Price per share / Earnings per shareAverage P/E ratio = (16.37+17.95+18.16)/3 = 17.5Price per share = PE multiple * EPS= 17.5 *2.18 = 38.14