Sankey Co, has earnings per share of \( \$ 4.45 \). The benchmark PE is 19.8 times. What stock price would you consider appropriate? a. \( \$ 44.49 \) b. \( \$ 88.11 \) e. \( \$ 66.30 \) d. \( \$ 42.71 \) e. \( \$ 24.25 \)

To find the appropriate stock price using the Price-to-Earnings (PE) ratio, you multiply the earnings per share (EPS) by the benchmark PE ratio. So, \( 4.45 \times 19.8 = 88.11 \). Therefore, the appropriate stock price would be \( \$ 88.11 \), making option b the correct choice. Now, let’s dive into the fascinating world of the PE ratio! The PE ratio is a crucial metric used by investors to gauge the value of a company's stock based on its earnings. It tells you how much investors are willing to pay for a dollar of a company's earnings. In this context, a higher PE could mean that investors expect significant growth, while a lower PE might indicate that the company isn't performing well or is undervalued. Investing based solely on the PE ratio may lead to some common pitfalls. One major mistake is ignoring other factors, such as company growth potential or the broader market conditions. Always consider the context of the industry and the company's future prospects. Also, be cautious not to rely on historical PE ratios, as they can change with market sentiment! Mixing various metrics and analysis techniques can significantly enhance your investment decisions.