Average P/E Ratio By Decade
Tuesday, January 5, 2010 at 07:50AM Even as some would have you believe that you have to be insane to buy stocks heading into 2010, there are many positive factors that investors can point to as reasons to be bullish. However, one that you won't hear being cited is valuation. Based on trailing earnings, the average P/E ratio of the S&P 500 during the decade that just ended was higher than any other decade in its history. Even after declining since the turn of the century, the average P/E ratio for the the '00s rose to a record high of 20.2, and at the end of December '09 i5 stood at 27.9 (on an operating basis).
Before rushing to hit the sell button, however, investors should be aware that the currently stratospheric P/E ratio of the S&P 500 is skewed by the negative quarterly results in Q4 2008 ($-0.09). That number will be replaced by an estimate of $16.73 in Q4 '09, which would drop the P/E ratio to a still lofty, although relatively more reasonable level of 20.1 times. What the bulls are really banking on, though, is strong results throughout 2010. Based on current forecasts from S&P, analysts are expecting S&P 500 earnings to rise to $74.98 per share in 2010. With the S&P 500 currently trading at 1,130, the P/E ratio on a forward basis comes all the way down to a much more manageable 15 times. Now all the companies have to do is deliver.
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Reader Comments (8)
hint: don't mention the something else happening bit to anyone.
Yet per any positive prospects near- and intermediate-term, with absolutely nothing being done since the lug nuts started coming off in '07 addressing the credibility of reported earnings -- with every layer of oversight binging on heaping helpings of fudge: this now being a decade-long (and running) scourge -- believability of anything reported in the private and public sector has become a bigger issue than anyone generally acknowledges. (And just because no one in the mainstream talks about this does not mean the trouble is not real.)
Indeed, what used to be considered the world's most transparent financial markets is better characterized a masterful deception.
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