Which situation could contribute to temporarily inflated valuations in an industry?

Acquiring a company during industry valuation peaks can indeed lead to temporarily inflated valuations in an industry. This situation arises because, during periods when valuations are high, the prices for acquiring companies tend to be elevated as well. When acquisitions occur at these peaks, it reflects the higher market sentiment and expectations for growth, which can artificially inflate the perceived value of not only the acquired company but also other companies within the same industry.

The prices paid for acquisitions can drive up the overall market valuations due to higher comparable company assessments, fostering a cycle where valuations continue to rise based on these inflated expectations. This can create a misleading impression of the industry's health and growth potential, as it may not be sustainable once the market corrects itself.

In comparison, high competition among buyers during stable environments typically leads to stable or slightly increased valuations but would not necessarily result in a temporary inflation of valuations. Consistent revenue growth year-on-year is a positive indicator of financial health but does not directly cause inflated valuations. Expansion in emerging markets can provide growth opportunities, but it doesn’t inherently inflate valuations unless combined with market speculation or unrealistic projections.