Is the Stock Market Cheap? – Wall St. Cheat Sheet

Is the Stock Market Cheap? – Wall St. Cheat Sheet

Here is a new update of a popular market valuation method using the most recent Standard & Poor’s “as reported” earnings and earnings estimates and the index monthly averages of daily closes for the past month, which is 1783.54. The ratios in parentheses use the monthly close of 1805.81. For the earnings, see the table below created from Standard & Poor’s latest earnings spreadsheet.

TTM P/E ratio = 18.5 (18.7)
P/E10 ratio = 24.7 (25.0)

The Valuation Thesis

A standard way to investigate market valuation is to study the historic Price-to-Earnings (P/E) ratio using reported earnings for the trailing twelve months, or TTM. Proponents of this approach ignore forward estimates because they are often based on wishful thinking, erroneous assumptions, and analyst bias.

TTM P/E Ratio

The “price” part of the P/E calculation is available in real time on TV and the Internet. The “earnings” part, however, is more difficult to find. The authoritative source is the Standard & Poor’s website, where the latest numbers are posted on the earnings page. The table here shows the TTM earnings based on “as reported” earnings and a combination of “as reported” earnings and Standard & Poor’s estimates for “as reported” earnings for the next few quarters. The values for the months between are linear interpolations from the quarterly numbers.


Is the Stock Market Cheap? – Wall St. Cheat Sheet

See which stocks are being affected by Social Media

Share this post