Evaluating Price Multiples in Renewable Energy Companies

When evaluating the equity of companies in the renewable energy sector, analysts often utilize price multiples to arrive at conclusions about investment opportunities.

Company A and Company B are both involved in the solar energy market. Company A has a price-to-earnings (P/E) ratio of 25 and is projected to have an earnings growth rate of 20% over the next five years. Company B, however, has a P/E ratio of 18, but its earnings are expected to grow at only 10% per year over the same period.

Based on this information, which price multiple is most appropriate to fairly value Company A and Company B in comparison with their growth potential?