Which company has the most risk from an investor's standpoint? Firm A has a PE of 92 times and Firm B has a PE of 16 times. Assume both firms operate in the same industry. Firm A has fewer shares outstanding than Firm B.
A) Firm A because it has the higher PE ratio.
B) Firm B because it has a lower PE ratio.
C) Firm A because it has fewer shares outstanding.
D) Firm B because it has more shares outstanding.

Question

Quizplus · Accepted Answer

Firm A has a higher PE ratio, indicating it may be overvalued or expected to grow significantly, which introduces more risk compared to Firm B with a lower PE ratio. The number of shares outstanding does not directly indicate risk.

Which Company Has the Most Risk from an Investor's Standpoint