Company X Has a P/E Ratio of 16 in Year

question 126

Multiple Choice

Company X has a P/E ratio of 16 in year 2010 and 16.5 in 2011. In 2012, its P/E ratio is 24. The best way to interpret these data is to conclude that:

• A) the stock is overpriced and should be sold.
• B) the stock has great growth capacity and should be bought.
• C) other financial results and news should be examined to determine the cause of the P/E ratio change.
• D) the stock is underpriced and should be bought.

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Definitions:

Share

Represents a unit of ownership in a company or financial asset, entitling the shareholder to a portion of the corporation's assets and profits.

Elicits

Refers to the process of drawing out responses, information, or reactions from someone or something.

Behavior

The range of actions exhibited by an individual.

Potential Behaviors

Actions or reactions that an individual is capable of performing, which may be observed under certain conditions.