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If the P/E ratio decreases, this indicates that the company has become more valuable

If the P/E ratio decreases, this indicates that the company has become more valuable

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Answer #1

False. This statement is not always true because the price of stock is determined by assumption of future earning and news or information about future growth, while earnings are based on usually historic earnings.
Decreasing P/E ratio can be worrying sign that the investors or markets feel that the growth of the company is less or competitors are increasing or have launched superior products. Low P/E may also indicate the company is out if its growth phase and entered into maturity phase.

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