(Smart Money) — With earnings season at hand, many investors are ready to reassess whether their dollars are being put to the best use and whether their bets will pay off down the road. Investment professionals use a company’s price/earnings ratio to gauge the market’s expectations for earnings growth. A high number indicates that the market has trumped up the stock price and is betting on increased earnings. A low number indicates that investors have less confidence in the company’s potential to raise its earnings. Some investors consider P/E ratios a measure of how cheap or expensive a stock is.
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