If a company's P/E ratio suddenly decreases:
A)you should sell the shares as soon as possible.
B)you should buy more of the shares to increase your average gain.
C)the company probably announced higher earnings forecasts.
D)the market must have reacted to some bad news that is expected to affect the company in the future.

Question

Quizplus · Accepted Answer

A decrease in P/E ratio indicates that either the price of the stock has decreased or the earnings have increased. However, if the decrease in P/E ratio is sudden, it is likely due to the market reacting to some bad news that is expected to affect the company in the future. Therefore, it is not advisable to buy more shares in this situation, and selling the shares is not necessarily the best option either. It is important to assess the situation and the news that caused the decrease in P/E ratio before making any investment decisions.

If a Company's P/E Ratio Suddenly Decreases