Low P/E ratios tend to indicate that a company will _____,ceteris paribus.

Question

Quizplus · Accepted Answer

Low P/E ratios usually indicate that investors have low expectations for future growth, profitability, or both. This is because P/E ratios reflect the price investors are willing to pay for a dollar of earnings. A low P/E ratio suggests that investors are not willing to pay as much for each dollar of earnings because the company may be seen as risky or facing challenges that may prevent it from growing quickly or being very profitable. Therefore, ceteris paribus, a low P/E ratio tends to indicate that a company will grow slowly or at a slower pace than the average company, which may have a higher P/E ratio reflecting greater expectations of growth and profitability.

Low P/E Ratios Tend to Indicate That a Company Will