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NISM Certifications · NISM-Series-XV: Research Analyst · Qualities of a Good Research Report

A research report values a company at Rs 840 per share using a target P/E of 24 on estimated EPS. The current market price is Rs 700. What EPS estimate does the target imply, and what is the upside to the target price?

The implied EPS is Rs 35, obtained by dividing the target price of Rs 840 by the P/E of 24. The upside is 20%, calculated as the Rs 140 gain over the current price of Rs 700, since upside is measured on the current market price.

  1. AEPS Rs 35; upside 20%Correct
  2. BEPS Rs 35; upside 16.7%
  3. CEPS Rs 29.2; upside 20%
  4. DEPS Rs 40; upside 20%

Explanation

EPS = 840 / 24 = Rs 35. Upside = (840 - 700) / 700 = 140 / 700 = 20%. The 16.7% option wrongly uses the target price as the base (140/840). Rs 29.2 comes from dividing 700 by 24, using the wrong price.

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