E.Choudhury Company's price/earnings ratio is 15.3.Its closest competitor,Bhatt,Inc.has a Price/Earnings ratio of 9.4.Which of the following would not be a valid conclusion to draw from a comparison of the two companies' Price/Earnings ratios?
A) E. Choudhury Company's stock is overpriced.
B) Investors believe E. Choudhury Co. has a brighter future than Bhatt, Inc.
C) E. Choudhury Company has been more profitable than Bhatt, Inc.
D) The stock price of E. Choudhury Company has been bid up due to rumors of a merger.

Question

Quizplus · Accepted Answer

A higher P/E ratio does not necessarily indicate higher profitability; it reflects investor expectations of future growth.

EChoudhury Company's Price/earnings Ratio Is 15