Price divided by earnings per share. A P/E of 25 means you pay $25 for every $1 the company currently earns each year. High P/E means the market expects growth; low P/E means it expects trouble or dullness. It is a question, not an answer: what does this price assume, and is that assumption reasonable?
Check yourself
A high P/E tells you the market expects…
The company to shrink
Meaningful earnings growth ahead correct
Nothing at all
It prices in a future. If that future arrives, the price was fair. If it does not, the fall is brutal.
Learn this properly
This term has a full interactive lesson in Wick — the chart, the pattern to tap,
and a live practice terminal to try it on. Free to start.