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Options
- A
The company with P/E ratio of 9
-
The company with P/E ratio of 27
Correct answer
- C
Both companies are very expensive
- D
From PEG ratio, one cannot judge the valuation
Why this is the answer
PEG ratio = P/E ÷ Growth rate. First company: 9 ÷ 8 = 1.125. Second company: 27 ÷ 32 ≈ 0.84. Lower PEG indicates cheaper valuation relative to growth. Despite a higher P/E, the second company offers stronger growth, making it more attractive on a PEG basis.
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