Share price impact of settlement
I was wondering the following:
Let's say that a company has made a provision for a court conflict in the statements, but it is suddenly resolved and can be added to earnings in the next period. Hence, the eps will go up (which investors value) and the price has to increase. Is it true that, in theory, you would multiply this eps by the p/e ratio to see what the effect on share price will be? Or is there another method?
Thanks for your help
This seems like a one-time item; so I don't think its effect should have the multiplier that ongoing eps would. I would take ongoing eps (excluding the one-time item), multiply that by the P/E, then add the per-share value of this one-time item to get the pro forma share price.
However, if I misunderstood and this court resolution permanently adds to eps, then disregard the above.
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