Wealth-Forum e-zine

Test your understanding of this topic

Q1.

You have two stocks A and B. A is a mining company and B is a telecom company. Which valuation metric would you use to find which one is worth buying?

a. P/E

b. PEG

c. Both can be used

Q2.

PEG of a stock which has earnings growth consensus estimates same as its P/E is:

a. >1

b. =1

c. <1

Q3.

Two firms P and Q belong to the same industry growing at a rate of 15% p.a. P/E of P is 12 while that of Q is 15. Which stock appears cheaper and which valuation metric is to be used?

a. P, P/E

b. Q, P/E

c. P, PEG

d. Q, PEG

Q4.

Information of two stocks X and Y is given below: Stock X : P/E is 30, EPS growth estimate is 40% Stock Y : P/E is 20, EPS growth estimate is 15% Which stock appears overvalued?

a. X

b. Y

c. Both are undervalued

Q5.

Relative valuation across industries is enabled by:

a. PEG

b. PE

c. Both of the above