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What is one possible explanation of the differences in P/E’s between companies?

What is one possible explanation of the differences in P/E’s between companies?

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Answer #1

If the market has positive view of a particular company or a sector, the PE ratio of that company/sector will be high.

Financial strength & any company-specific risk. Companies which are perceived by investors as stronger/more stable at higher P/E ratios.

Growth or expectation of growth. Rapidly growing companies trade at high P/E ratios as it is based on future earnings potential.


So differences in PE between companies mainly come from the growth or expectations of growth and difference in riskiness of the companies.

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