Since the P/E ratio is high, we can confer that the price per share is overvalued. I was not able to see it, how you did calculate the fundamental price? Can you please look into it and show us step by step?
Market price per share and intrinsic value (a fundamental price) are both mechanisms through which the valuation of a company occurs. Market price per share is a market value whose connotation represents the current value of the company, and this valuation may be higher or lower than the intrinsic value. As such, intrinsic value is a core-measure envisaged by investors to assuage the feasibility of a company. Often, organizations with high intrinsic value are more preferable by investors given a set of reasonable amounts of risk. Demand drives the price of stocks with high price connoting buy orders surpassing sell orders and vice versa. Demand is driven by earnings, economy, expectations, and economy (Shubert et al., 2011) Stock prices progress positively in correlation to the surge of these four factors and digress with a decrease in the four factors. Price per share can be calculated in many ways. One of the ways is the P/E ratio multiplied by the EPS. Saudi Aramco’s current EPS=0.91, and its P/E ratio=25.38 as of 8th, November 2020. Therefore, its price per share= 25.38*0.91=23.0958. Since the P/E ratio is high, we can confer that the price per share is overvalued.
In the article named “Human resource, financial market development and economic growth in Saudi Arabia: a role of human capital” by Haider Mahmood and Nasser Saad Alkahtani reiterate the importance of financial market development (FMD) on the economic growth of Saudi Arabia in light of the Saudi Vision 2030.
Within the research study, the authors envisaged the usage of autoregressive distributed lag (ARDL) cointegration methodology to study the interaction between HC and human resources or between capital and FMD. As such, they found that elasticity of FMD is found greatest in
a positive contribution to growth in an economy. Elasticity reiterates that human capital is not enough to contribute to the economy’s growth but their interaction with the financial market development which synergistically contributes to economic growth in Saudi Arabia. For example, an 1% in FMD interaction with human capital will surge economic growth by 0.688% (Mahmood & Alkahtani, 2017).
Mahmood, H., & Alkahtani, N. S. (2018). Human resources, financial market development, and economic growth in Saudi Arabia: a role of human capital. Economic Annals-XXI, (169), 31-34.
Schubert, S. F., Brida, J. G., & Risso, W. A. (2011). The impacts of international tourism demand on the economic growth of small economies dependent on tourism. Tourism Management, 32(2), 377-385.