Analyzing Price-to-Earnings Ratios of ABC Manufacturing

Medium Equity Valuation Techniques Price Multiples

ABC Manufacturing is a well-established player in the automotive sector. Recently, an analyst is comparing ABC Manufacturing to two of its peers, XYZ Automotive and QRS Motors, to determine which company might be undervalued. The analyst notes the following:

ABC Manufacturing has a price-to-earnings (P/E) ratio of 15.
XYZ Automotive has a P/E ratio of 18.
QRS Motors has a P/E ratio of 12.

Based on this information, which of the following conclusions can the analyst draw regarding ABC Manufacturing's valuation compared to its peers?

ABC Manufacturing is the most overvalued among the three companies.

ABC Manufacturing appears to be undervalued relative to XYZ Automotive, but overvalued relative to QRS Motors.

ABC Manufacturing is fairly priced compared to its peers.

Hint

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