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Hi John, I know that the P/E ratio of a company is an indication of future growth or lets say if a company has a P/E ratio of 10, it means it will take 10 years for current earnings to pay-off share price.
So my question is,what does having a higher or lower P/E ratio mean .
is it better to have a higher P/E ratio (meaning it will take longer to pay-off share price or future earnings will grow so share price has to be quoted high)
Thanks John.A higher PE ratio means that shareholders are expected higher future growth.
The more they expect the earnings to grow in the future, the more they will pay for the share and therefore the higher the PE ratio will be.
(If the future growth is as they expect, then it will not in fact take longer to get back the share price – a PE of 10 means it will take 10 years based on current earnings. With growing earnings it will be less!)
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