Problem
Tom Smith is interested in investing in listed stocks on the ASX. She decided to be informed before investing and chose two stocks listed on the Australian Securities Exchange to research. The following is the information that he collected from his research.
An ordinary share of ABC Mining Company (ABC) is sold currently at $58.35. The average return of the company is 6.5%. ABC has an EPS of $7.5 in the current year, and its earnings expect to grow at 10.5% pa in the future. ABC had declared $1.90 dividends per share. The company's beta is 0.78. The average PE ratio for the mining industry is 12.
XYZ Financials Ltd (XYZ) belongs to the financial services sector and its current market price is $17.53 per share. The average return of the company is 12.5%. XYZ has an EPS of $0.8 in the current year, and its earnings expect to grow at 15% pa in the future. XYZ declared $0.55 dividends per share. The company's beta is 1.55. The average PE ratio for the financial services sector is 15.
He has decided to invest only in one stock and is struggling to choose the best between ABC and XYZ. Therefore, he seeks your advice. Provide your analysis and advice (you should reference all of the information you used for your analysis).