Price-to-Earnings ratio is often used to gauge the relative cost of one stock to another with respect to earnings. The average P-to-E (or P/E) is 15 to 25 for most companies in the market. If a company is trading with a P/E of 85, should you buy the stock?
a. Yes, the shares are cheap.
b. Provided other shares in the market are still trading at the average P/E, this company's stock is relatively expensive and should not be bought at this time unless there is some reason to rationalize such a price multiple (such as large expected sales growth in the future)
c. No, the shares are categorically expensive and therefore it is a bad investment.
d. The P/E is a bad proxy for value and is never used in reality.
Correct answer is:-
b. Provided other shares in the market are still trading at the average P/E, this company's stock is relatively expensive and should not be bought at this time unless there is some reason to rationalize such a price multiple (such as large expected sales growth in the future)
Price-to-Earnings ratio is often used to gauge the relative cost of one stock to another with...
Price-to-Earnings ratio is often used to gauge the relative cost of one stock to another with respect to earnings. The average P-to-E (or P/E) is 15 to 25 for most companies in the market. If a company is trading with a P/E of 85, should you buy the stock? O a. Yes, the shares are cheap. b. The P/E is a bad proxy for value and is never used in reality. o c. Provided other shares in the market are...
Price-to-Earnings ratio is often used to gauge the relative cost of one stock to another with respect to earnings. The average P-to-E (or P/E) is 15 to 25 for most companies in the market. If a company is trading with a P/E of 85, should you buy the stock? O a. Yes, the shares are cheap. b. The P/E is a bad proxy for value and is never used in reality. o c. Provided other shares in the market are...
30 The P/E ratio measures the O intrinsic value of the stock relative to earnings per share market price of the stock relative to retained earnings market value of the stock relative to earnings per share O book value of the stock relative to earnings per share
The price/earnings ratio, or multiplier approach, may be used for stock valuation. Explain this process and describe how the "multiplier" varies from the one available in the stock market quotation pages
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