4. (10 pts) Jeremiah Claxton, CFA, is a junior portfolio manager for a large university endowment fund. Claxton’s supervisor, Joanne LeMonte, has asked him to compare the valuation of Home Decor, Inc. and Lester’s Companies, Inc. and make a recommendation for an addition to the fund’s retail portfolio LeMonte has specifically asked Claxton to consider the price-to-cash flow valuation metric when making his recommendation. Claxton has gathered the following information. Comparison Between Lester’s and Home Decor (per share amounts) Rru Thaili CFP PCH RCEF per B Trulli Sur $0.36 $0.99 C PEOFF Your Cruh Form 132.78 17.39 28.69 22.2% Lester 5478 $2.00 1.22 23.90 20.88 Home $284 $1.36 1.36 Claxton has also determined that the CAPM betas of the two firms are not significantly different at the 1% level. Based on the information in the table, Are those two companies overvalued or undervalued?
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