The PE ratio:

Question

The PE ratio:

Quizplus · Accepted Answer

The PE ratio tends to be higher for growth stocks because investors are willing to pay more for a company's potential for future growth, even if the earnings are currently low or nonexistent. Value stocks typically have lower PE ratios because investors are looking for stocks that are undervalued based on current earnings. Additionally, answer choice C is incorrect because the PE ratio is based on the current market price of the stock in relation to its earnings per share over the past 12 months, not cumulative earnings over the life of the company. Answer choice D is also incorrect as a PE ratio less than 1 would indicate that the stock is earning less than its current price, which is not a desirable scenario for investors.

The PE Ratio