Gamma Company and Chi Company are similar and similar-sized companies operating in the same industry. At the end of the most recent year, Gamma's price-earnings ratio was 22.0, and Chi's price-earnings ratio was 14.2. What conclusion would you draw based on the difference in price-earnings ratios for the two companies?
What will be an ideal response?
Answers will vary
The price-earnings ratio is a measure of what investors in the stock market expect for a company. A high P/E ratio means that investors hold the company in high esteem and expect its earnings to increase in the future. The difference between P/E ratios for Gamma and Chi suggests that investors think more highly of Gamma and its future than for Chi.
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