XYZ tech is based in European Union. Share price of XYZ is traded at 50 euro per share. Company is paying dividends once a year. Expected dividend next year is about 1 euro per share. Return on equity is equal to 0.12.

Question 1.2:

You are worrying that company might be overvalued. Forward P/E ratio in tech sector is about 20. Analysts (whom you trust) expect that earnings per share will be 2 euro per share. Use relative (multiples) valuation method to estimate fair share price. Compare your estimate to the actual share price and make a conclusion whether company is overvalued or no?