neha.patni wrote:Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.
B. The company just won a patent on a new product.
C. Company A's stock is currently overvalued by a significant amount.
D. The 5 to 7 year time frame is too long for anyone to accurately forecast.
E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.

delhiboy1979 wrote:COuld you explain why E is irrelevant. If the competitor's stocks depreciate does it not imply A's tock grows quickly

neha.patni wrote:Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.

E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.

gmatmachoman wrote: @Ajith!!

Agreed E will be extreme to consider. But A also has hidden assumptions.

It say's expenses are declining. But nothing has been mentioned regarding the degree of percentage It can be nominal say 3% or stellar 50% reduction.

So how to fix that issue??

neha.patni wrote:Stock analyst: "We believe Company A's stock will appreciate at 35% a year for the next 5 to 7 years. Company A just became the leader in its industry and we expect its sales to grow at 8% a year."
Commentator: "But how can the stock's price be expected to grow more quickly than the company's underlying sales?"
Which of the following facts would best support the stock analyst?
A. The company's expenses will be declining over the next 5 to 10 years.
B. The company just won a patent on a new product.
C. Company A's stock is currently overvalued by a significant amount.
D. The 5 to 7 year time frame is too long for anyone to accurately forecast.
E. Company A's industry peer group is expected to experience stock appreciation rates of 30% over the same time horizon.