Q4: You have been asked to assess whether Walgreen, a drugstore chain, is correctly priced relative to its competitors in the drugstore industry. The following are the price/sales ratios, profit margins, and other relative details of the firms in the drugstore industry.
|
Company |
P/S Ratio |
Profit Margin (%) |
Payout (%) |
Expected Growth (%) |
Beta |
|
Arbor Drugs |
0.42 |
3.40 |
18 |
14.0 |
1.05 |
|
Big B |
0.30 |
1.90 |
14 |
23.5 |
0.70 |
|
Drug Emporium |
0.10 |
0.60 |
0 |
27.5 |
0.90 |
|
Fay’s |
0.15 |
1.30 |
37 |
11.5 |
0.90 |
|
Genovese |
0.18 |
1.70 |
26 |
10.5 |
0.80 |
|
Longs Drug |
0.30 |
2.00 |
46 |
6.0 |
0.90 |
|
Perry Drugs |
0.12 |
1.30 |
0 |
12.5 |
1.10 |
|
Rite-Aid |
0.33 |
3.20 |
37 |
10.5 |
0.90 |
|
Walgreen |
0.60 |
2.70 |
31 |
13.5 |
1.15 |
Based entirely on a subjective analysis, do you think that Walgreen is overpriced because its price/sales ratio is the highest in the industry? If it is not, how would you rationalize its value?
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