Wednesday, January 17, 2024

What is a Fair Value P/E for the S&P 500 Using Forward 12 Month Estimated Non-GAAP Earnings

 


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2 comments:

  1. AnonymousJanuary 19, 2024 at 1:14 PM

    In the past we didn't have +/- $1Tril/yr in stock buybacks, so factor that in too. Great video.

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  2. TENNINDEPENDENTJanuary 19, 2024 at 1:41 PM

    There are a lot of factors that go into stock prices. The profit margin issue is a long term pricing issue that would justify higher than historical P/E ratios on the S&P 500 using the forward 12 month estimated non-GAAP earnings or TTM GAAP, compared to the long term average numbers going back 30 or 50 years.

    The buyback level will impact the supply of stock which can influence price particularly when there is excessive money, as now, in the system that has nowhere to go for productive uses. The level of competition from credit risk free investments is also a factor, using for example a 10 year treasury yield,

    In the Russell 3000, a broad measure of the entire U.S. stock market, the 2022 total buyback was at $1.05 trillion. That may fall some this year in part due to the 1% excise tax that the companies have to pay on the value and partly due to higher stock prices making the buybacks far less prudent.

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