Generally the PE ratio of a stock should be close to the forward looking EPS growth rate. However, you will see some major deviations from this observation. Investors will push the PE ratio of stocks up to very high levels if the growth prospects of a stock are hard to measure or if the firm has the potential to grow much beyond the predictions analysts make. A clear example of this phenomena are the Internet stocks, which often trade with PE ratio's in the hundred's while they barely make any money. In this case, it is the unpredictable growth opportunity of the Internet that makes investors push the stock price and the PE ratio way up.
Profitability is the net result of a large number of policies and decisions a firm makes.
Profitability ratios show a combination of liquidity, asset management and debt management on operating results of a firm. The profitability ratios are a good measure of how well the firm is managed and how well the company uses its assets. Profit margin on sales is another indicator often used to judge the financial position of a company. This indicator is computed by dividing net income after taxes by sales. The resulting value is an indication of the profit per dollar of sales.