19.03.2023 - 23:18

A high PE ratio may indicate that a firm is expected to grow significantly. True or False?

Question:

A high PE ratio may indicate that a firm is expected to grow significantly. True or False?

Answers (1)
  • francesko
    April 2, 2023 в 00:12

    True.

    The price-to-earnings (PE) ratio is a financial metric used to evaluate a company's stock price in relation to its earnings per share (EPS). It is calculated by dividing the current market price of a share by the EPS.

    A high PE ratio indicates that investors are willing to pay a higher price for each dollar of earnings generated by the company. This may be an indication that the market expects the company to grow significantly in the future, as investors are willing to pay a premium for the company's expected earnings growth.

    However, a high PE ratio may also indicate that the company is overvalued or that its current earnings are not sufficient to justify its current stock price. It is important to consider other factors such as the company's industry, competition, financial health, and growth prospects before making investment decisions based solely on the PE ratio.

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