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What does the P/E ratio indicate about a company? How reliable of an indicator is the...

What does the P/E ratio indicate about a company? How reliable of an indicator is the ratio?

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Answer #1

Indicate

  • P/E ratio reveals stock valuation compares to its industry group
  • It also reveals how much investors are willing to pay per dollar of earnings.
  • The P/E ratio also reveals what the market is willing to pay today for a share based on its past earnings.

Reliability

  • Investor will believe than one Single metric for investment is available which is not always the case
  • P/E is computed based on earnings which can be manipulating by manipulating interview.
  • P/E ratio can be compared between same industries.
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