Market-Based Valuation of XYZ Corp

Easy Equity Valuation Applications Market-based Valuation

Consider a retail company, XYZ Corp, which has consistently traded at a price-to-earnings (P/E) ratio of 15 over the last five years. The industry average P/E ratio for retail companies is currently 18. Based on this information, which of the following statements is most accurate concerning the market-based valuation of XYZ Corp?

XYZ Corp is undervalued compared to the industry average, as its P/E ratio is lower.

XYZ Corp is overvalued based on its historical P/E ratio, which is below the current industry average.

The comparison of P/E ratios is irrelevant without knowing the expected growth rates of XYZ Corp and the industry.

Hint

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