PLEASE ANSWER

You have been hired as a retail analyst. In your first task on the job, you are asked to perform a P/E-based comparison of two hypothetical jewelry stores as of early 2019. You have the following data for Hallwhite Stores (HS) and Ruffany (RUF).

• HS is priced at $44. RUF is priced at $22.50.
• HS has a simple capital structure, earned $2.00 per share (basic and diluted) in 2018, and is expected to earn $2.20 (basic and diluted) in 2019.
• RUF has a complex capital structure as a result of its outstanding stock options. Moreover, it had several unusual items that reduced its basic EPS in 2018 to $0.50 (versus the $0.75 that it earned in 2017).
• For 2019, you expect RUF to achieve net income of $30 million. RUF has 30 million shares outstanding and options outstanding for an additional 3,333,333 shares.

A. Which P/E (trailing or forward) should Stewart use to compare the two companies valuation?

B. Which of the two stocks is relatively more attractive when valued on the basis