A lower than normal price/earnings ratio could mean:
A) the company's shares are undervalued.
B) the market is expecting future EPS to be higher.
C) the company's shares are overvalued.
D) shareholders are receiving a high return.

Question

Quizplus · Accepted Answer

A lower than normal price/earnings ratio typically means that the company's shares are undervalued, since the stock price is not reflecting the company's earnings potential. It could also mean that the market is uncertain about the company's future earnings growth, but in general a low P/E ratio suggests that the stock is a good value for investors.

A Lower Than Normal Price/earnings Ratio Could Mean