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Does that mean the price of the stock does not represent the true value of the company?


P/E doesn't mean much for a company that is still growing fast.


Good point.


It means the value of the stock doesn't represent the value of the company assuming that the company's recent earning history is indicative of their earning potential. In a growing company, or one where for some reason or another past earnings are not a good indicator, it doesn't mean much.

Theoretically you can deduce the market's idea of how much the company will earn from the PE of such a company.




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