Reading 43: Market-Based Valuation: Price Multiples- LOS companies, industry, leading, likely

youzizhang

 

LOS j, (Part 1): Evaluate a stock by the method of comparables using each of the price multiples.

Q1. 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 38. Based on the method of comparables, an analyst would most likely conclude that PTI should be:

A)   bought as an undervalued stock.

B)   sold as an overvalued stock.

C)   sold short as an overvalued stock.

 

Q2. 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:

A)   sold or sold short as an overvalued stock.

B)   bought as an undervalued stock.

C)   viewed as a properly valued stock.

 

Q3. Proprietary Technologies, Inc., (PTI) has a leading price-to-earnings (P/E) ratio of 38 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:

A)   viewed as a properly valued stock.

B)   sold or sold short as an overvalued stock.

C)   bought as an undervalued stock.

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