What does a high PE ratio indicate?

A high price-to-earnings (PE) ratio typically indicates that investors are expecting higher growth rates in the future compared to companies with lower PE ratios. It suggests that the stock is potentially overvalued or that investors believe the company will have significant growth in earnings. As a result, while investors may have higher growth expectations, they also take on potentially higher risk because if the company fails to meet these growth expectations, the stock price may fall significantly. This dynamic makes option C the most accurate choice, as it encapsulates the relationship between high PE ratios, growth potential, and the risks involved.

In contrast, choices that indicate lower growth potential or good dividends suggest a more conservative investment outlook, which typically aligns with lower PE ratios rather than high ones. The idea of equal risk and reward does not align with the volatility usually associated with high-growth companies, while low risk and good dividends typically relate to more established companies that may not exhibit high PE ratios.