| |
Major Site Upgrade in Progress |
 |
|
 |
|
Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
|
|
|
 |
|
 |
|
 Posted: Wed Feb 28, 2007 1:17 pm Post subject: What the PE Ratio can tell us about the Future Stock Market |
 |
|
|
 |
|
 |
|
|
|
|
S&P 500 earnings are on track for a 20% gain compared to last years 3 rd quarter. Next quarter earnings should rise about 11%, marking the fifteenth straight quarter of a double-digit gain. Along with the excellent earnings performance we have experienced dramatic strength in the major averages as well. The DJIA is at all time highs and the S&P 500 is above 5 year highs.
The outlook for continued good performance in both earnings and the indices remains strong. Given this positive outlook, I thought it might be appropriate to see if stock valuations are getting ahead of themselves by looking at current and past PE ratios.
First, just to be sure we all know what is meant by the PE ratio. It is a ratio of a company's current share price compared to its per-share earnings. Calculated as:
This means if the value per share goes up faster than the earnings per share, then the PE ratio goes up. The higher the PE ratio the more lofty the valuations and the greater the potential for the market to overheat, resulting in a pull back. This happened in 2000. If earnings move up faster than the value per share, then the PE ratio will decline. This happens when the market is transitioning from an overbought situation even as earnings increase. The point is that both stock prices and earnings drive the PE ratio.
With most all of the S&P 500 companies having reported their earnings, it turns out that the PE ratio for the S&P 500 for the 3 rd quarter of 2006 is 17.5. This is still above the average of 16, though it is trending down. The table below displays the PE ratio for the S&P 500 for the last 9 quarters. As you can see it has fallen from 20.5 in the 3 rd quarter of 2004 to 17.5 in the latest quarter. So even with the nice move up in the S&P 500, the PE ratio has fallen, driven by double digit earnings growth.
http://www.marketoracle.co.uk/Article413.html |
|
|
|
|
|
|
 |
Online Finance Tools & Calculators |
 |
| Credit Score Calculator |
Easy to use online Credit Scoring tool - Calculate your credit score now online for FREE ! using the Moneyforums.co.uk credit scoring tool. Also TEN Tips on improving and mainting a good credit rating ! |
|
| Quick Health Calculator |
Easy to use quick health calculator to help you get started on the path to fitness. Calculates your body mass index (BMI). |
|
| "When will I die ?" Calculator |
Calculate when will you die based on your current life style and then more importantly what you can do about extending your lifespan ! |
|
| Mortgage Calculator |
Easy to use online Mortgage calculator tool - Calculate how long it will take to pay off your mortgage and what your monthly repayments will be as well as interest charged per month per each year. |
|
| Savings Calculator |
Use the flexible savings calculator to estimate the amount of interest you would earn given a level of monthly savings, with many optional settings. |
|
| UK Tax Calculator |
Check your tax and NI liability using this easy to use online tool. Outputs, Tax, Ni, Net pay and gross pay on an annual, monthly and weekly basis, also estimates your tax burden and the number of days a year you work for the tax man ! Plus lots of tax saving tips. |
|
|
 |
|
 |
|
Money
Forums Guides |
|
| Credit
Card Stoozing |
The
following guide explains the basics of credit
card stoozing in a step by step basis. |
|
| Discount
Vouchers |
Online
discount vouchers giving upto
50% off in stores such as Dixons,
Tesco, Avon, Currys, Boden and more. Many
of the vouchers are time limited - So check
back regularly |
|
| Money
Saving Guide |
Guide
to saving money on household bills & personal
finances - Start saving thousands of £'s
every year TODAY ! |
|
| Savings
Tree |
A
guide to Savings Accounts, from Cash ISA's to
Regular Savers to Premium Bonds, all explained
in an easy to understand manner. |
|
|
Users
Groups | Profile
| Messages
| FAQ | Sponsers
& Links | Member
list | Recommend this site | Top Money Saving Sitee
© 2004 - 2007 Moneyforums.co.uk / Market Oracle Ltd - Asserts copyright on all topics & posts made on this site. Moneyforums are open forums, and thus posts are NOT endorsed by Moneyforums.co.uk / Market Oracle Ltd . Any and all information provided within the Website is for general information purposes only and nor is or shall be deemed to constitute, financial or other advice. We recommend that independent professional advice is obtained before you purchase any product and/or service. All tools and guides are provided as is for general information purposes only.
|
|
|
