They represent the bottom-line amount of money that a company creates from its sales or revenue.Ĭompanies of domestic, publicly traded U.S.-listed stocks are required to officially report their earnings to the U.S. Lower multiples reflect lower perceived prospects as well as greater risk and uncertainty of achieving results.Įarnings are a company’s net profit, measured either on a quarterly or annual basis. Stocks with high price-earnings ratios not only have high expectations, but they also possess a higher anticipated certainty of realizing their growth. A slight change in projections can have a major impact on stock prices, especially if the multiple, or price-earnings (P/E) ratio, that investors are willing to pay for a given level of earnings also expands or contracts. Stock prices are established through investor’s expectations and adjusted as those expectations change or are proven wrong.
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