Stock Valuation at Ragan Engines - Case Study Example

This difference in P/E is not justified given that Ragan has superior earnings and dividends compared to that of the industry i.e. EPS of $ 5.35 vs. $ 1.47 and DPS of $ 2.13 vs. $ 0.47 respectively. Relative valuation of Ragan puts the company’s stock price at $ 65.64 which offers a significant upside from the intrinsic price of $ 38.55. One of the measures that Carrington and Genevieve can employ to increase the price of their shares before selling them to East Coast Yachts is to retain more earnings and invest in the research and development of additional proprietary technology.

Investing in appropriate and improved technology will have the effect of reducing production costs for the organization, therefore giving Ragan the opportunity to produce fuel saving engines. Such investment in technology will enable Ragan to increase their profit projections, therefore increasing the value of shares. In addition to that, retaining earnings for investment in more proprietary technology will give Ragan an edge over its competitors. This edge will make investors in the company to develop optimism, therefore ensuring that the prices of the shares maintain a high value.

These strategies, however, will not increase the value of their shares when Ragan fails to record improvements after investing in technology. Since there will be no new technology to give the company the competitive edge, the value of the shares will not increase. One issue is that the stock prices of Ragan have been undervalued because it is not listed in the securities exchange market. Ragan has a P/E of 7.21x, while the Industry has a P/E of 12.27x. Ragan posts higher earnings and value per share than the rest of the industry.

Upon valuation, Ragan’s stock price is $65.64, compared to the figure provided of $38.85. A solution to this issue lays in the reevaluation the value of Ragan’s stocks in order to provide the true value of the shares. In the short run,