Tesla Inc's P/E ratio is on average 86.75. Their competitor, Ford, on the other hand is at an average P/E ratio of 3.96. There is a significant difference between the two ratios and the main reason for this is because Tesla Inc's P/E ratio is overvalued significantly when comparing to Ford. This is because the investors of Tesla Inc believe that Tesla Inc will continue to grow significantly as the years go by. As with Ford, their investors do not believe Ford's future will be as successful which is why their P/E is considered to be undervalued. Typically the average P/E is 20-25, (Hargrave, 2016) which means that Ford is undervalued and Tesla is overvalued. 

 

Question 1 

In accordance with the above, is it reasonable to buy the stock?

 

Nike price per share closed at $107.34 and the earnings per share is 3.58. Using the formula P/E Ratio; Price-Earnings Ratio = Price per share Earnings per share so for Nike's P/E Ratio it would be 107.34 ÷ 3.58 would equal 30.103 which would be 30.13

When it comes to competitors, I choose to go Adidas because of their huge impact in Europe in the sports world and they are the second biggest sports brand after Nike. When I looked at their information from market watch, I saw the following: Adidas price per share is 166.00 in euros and their earning per share is 10.52 in euros. Using the P/E Ratio formula, it would be 166.00 ÷ 10.52 would equal 15.779 rounding to 15.78.

 

Question 2

In accordance with the above, is it reasonable to buy the stock?