Final answer:
High P/E stocks are sometimes called growth stocks because they are associated with companies that have high potential for future growth and earnings. Growth stocks are typically those of companies that are expected to experience significant growth in the future, and investors are willing to pay a premium for these stocks due to their growth potential.
Step-by-step explanation:
High P/E stocks are sometimes called growth stocks because they are associated with companies that have high potential for future growth and earnings. The price-to-earnings (P/E) ratio is a financial metric that measures the valuation of a company's stock relative to its earnings. A high P/E ratio suggests that investors have high expectations for future earnings growth. Growth stocks are typically those of companies that are expected to experience significant growth in the future, and investors are willing to pay a premium for these stocks due to their growth potential.
For example, a technology company that is developing innovative products or expanding into new markets may have a high P/E ratio because investors expect the company's earnings to grow rapidly in the future. These companies often reinvest their profits back into the business to fuel further growth, rather than paying out high dividends to shareholders. As a result, investors who buy high P/E growth stocks are speculating on the future growth of the company and hoping that the stock price will increase over time.