Question

Both Archer's and Burger Bar have price-earnings ratios of 16.2. However, Archer's has a higher PEG ratio than Burger Bar. It must be true that Archer's ______ than Burger Bar.

Answer 1

When comparing two companies' PEG ratios, the higher PEG ratio suggests a higher expected future earnings growth rate relative to the stock price.

Step-by-step explanation:

When comparing two companies' PEG ratios, the one with the higher PEG ratio is considered more overvalued relative to its expected earnings growth. The PEG ratio takes into account both the price-earnings ratio and the company's projected earnings growth rate. In this case, since Archer's has a higher PEG ratio than Burger Bar, it implies that Archer's is expected to have a higher future earnings growth rate compared to its current stock price, making it a potentially more attractive investment.