Question #76
Reading: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples
PDF File: Reading 22 Market-Based Valuation - Price and Enterprise Value Multiples.pdf
Page: 28
Status: Unattempted
Question
Proprietary Technologies, Inc., (PTI) has a leading price-to-earnings (P/E) ratio of 28 while the median leading P/E of a peer group of companies within the industry is 28. Based on the method of comparables, an analyst would most likely conclude that PTI should be:
Answer Choices:
A. bought as an undervalued stock
B. sold or sold short as an overvalued stock
C. viewed as a properly valued stock
Explanation
The price per dollar of earnings is the same as that for the median of the peer group,
which implies that it is likely properly valued.