Investors may be willing to pay considerably more for a stock whose PEG ratio is greater than one if they believe the increase in earnings will result in future financial returns that significantly exceed the firm's cost of equity.

Question

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A PEG ratio greater than one indicates that the stock may be overvalued, but investors may still be willing to pay more if they have confidence in the company's ability to generate future earnings that exceed the cost of equity.

Investors May Be Willing to Pay Considerably More for a Stock