Question

Penny's candies is showing a p/e ratio of 1.32, while donna's confections has a p/e ratio of 6.7. what is the general mood of investors at these companies?

Answer 1

Investors at Penny's candies have low expectations from the company since it has a very low P/E ratio. Either the company is not performing well or investors have discounted some bad news in future cash flows.

Whereas Donna's confections has a P/E of 6.7 which is much better than that of Penny's. So here the company is performing well and investors are positive on future good news and they expect the cash flows to improve and hence the stock rules at a higher P/E ratio