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I calculate Rosetta Stone’s P/E ratio as 10x prior to a report about future industry growth....

I calculate Rosetta Stone’s P/E ratio as 10x prior to a report about future industry growth. If I revise my expectations about Rosetta Stone’s future growth downward following this report, will Rosetta Stone’s P/E ratio go up or down?

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Answer #1

HI,

P/E ratio is a profitability ratio and formula for P/E ratio is

P/E = Price per share/Earning per share

since you are downgrading future growth rate that means future earning will go down of firm.

So Earning per share will go down that P/E ratio will go up.

THanks

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