If the P/E ratio is high, investors are paying a lot per dollar of earnings, and implicitly, a high P/E ratio is a forecast that earnings will grow quickly to justify the current high price. If earnings fail to grow as quickly as anticipated, the price of the stock will fall. Conversely, for a stock with a low price/earnings ratio, the market is forecasting that earnings will remain low or even fall. If earnings rebound, or even remain stable, the price of the stock will rise.
