Research Suggests That Low P/E Stocks Outperform High P/E Stocks

question 18

Multiple Choice

Research suggests that low P/E stocks outperform high P/E stocks. Why is this finding an anomaly?

• A) Low P/E stocks tend to have higher risk than high P/E stocks.
• B) Low P/E stocks are temporarily out of favor but may have strong prospects.
• C) The low P/E effect contradicts the Efficient Market Hypothesis.
• D) Low P/E stocks are often weak companies.

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Definitions:

Product Line

A group of related products manufactured or sold by a business.

Material Handling

The activities involved in moving, storing, controlling, and protecting materials and products throughout the manufacturing, distribution, consumption, and disposal processes.

Storage Costs

Storage costs are expenses associated with warehousing and holding inventory, including rent, utilities, and other maintenance expenses for storage facilities.

Activity-Based Costing

Activity-based costing is an accounting method that assigns costs to products or services based on the activities that go into producing them, thereby giving more accurate insights into the costs and profitability of each.