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Dear Sir,
Could you help me to understand why the statement 1 is true and 2 is false.
1. If the P/E ratio is lower than the average sector P/E ratio then the market does not view the growth prospects very favourably.
2. If the P/E ratio is higher than the average sector ratio then an acquisition by Phobis could result in improved financial performance of Danoca.
Thanks
Gabriella
Again, this is something I do explain in the lectures!!
If investors expect higher growth then the market value of the share will be higher and therefore the PE ratio will be higher. The PE ratio is the main indicator of expected growth.
If one company takes over another then they are likely to be able to generate higher growth.
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