Equity valuation - P/E | EY | ERP
EU Forward P/E - Stoxx 600
Insights | EU
The Price-to-Earnings (P/E) determines whether an index is fundamentally cheap or expensive. It compares an index's price to its earnings per share, indicating what the market is willing to pay for its current profits. A high P/E implies rapid future growth and more expensive prices. A low P/E suggests a value discount and a cheaper market.
CURRENT READINGS
Looking at the latest realized earnings, the Stoxx 600 has a P/E of 14.7x, in the fair value range.
The ratio is predicted to move lower (to 14.4x, as earnings are predicted to increase) with next quarter's expected earnings.
MARKET IMPLICATIONS
The Stoxx 600 forward P/E ratio at 14.4x is at fair value.
In general terms, an expensive P/E ratio means that investors would buy or sell stocks at an expensive price point. It will invite value-based investors to sell | trim | avoid while momentum investors would buy | hold stocks on the positive trend.
A cheap P/E ratio means that investors would buy or sell stocks at a cheap price point. It will invite value-based investors to buy | add while momentum investors to wait | avoid stocks on the negative trend.
US Forward P/E - S&P 500
Insights | US
Please refer to the P/E ratio intro in the EU section above. Like the European market, the US P/E tells us what premium investors are willing to pay for current and future earnings.
CURRENT READINGS
The S&P 500 index has a trailing P/E of 26.9x - in expensive territory - and a forward P/E of 25.7x for next quarter.
MARKET IMPLICATIONS
The S&P 500 forward P/E ratio at 25.7x is expensive.
An expensive P/E invites value-based investors to trim or avoid, while momentum investors might hold on the positive trend. A cheap P/E invites value investors to buy, while momentum waits.