The 'Average' NYSE Stock Has A Trailing P/E Of 41.5

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Includes: BXUB, BXUC, CRF, DDM, DIA, DOG, DUSA, DXD, EEH, EPS, EQL, ESGL, FEX, FWDD, HUSV, IVV, IWL, IWM, JHML, JKD, OTPIX, PPLC, PPSC, PSQ, QID-OLD, QLD, QQEW, QQQ, QQQE, QQXT, RSP, RWM, RYARX, RYRSX, SCAP, SCHX, SDOW, SDS, SFLA, SH, SMLL, SPDN, SPLX, SPSM, SPUU, SPXE, SPXL, SPXN, SPXS, SPXT, SPXU-OLD, SPXV, SPY, SQQQ, SRTY, SSO, SYE, TNA, TQQQ, TWM, TZA, UDOW, UDPIX, UPRO, URTY, USA, USSD, USWD, UWM, VFINX, VOO, VTWO, VV, ZF
by: Chris Ridder, CFA

Summary

550 NYSE stocks had negative EPS over the last twelve months.

Those NYSE stocks with earnings had an average P/E of 41.5.

A 95% "trimmed mean" of the NYSE stocks with earnings had a P/E of 29.5.

On Wednesday, I downloaded basic data of all NYSE stocks from the WSJ for the close of trading on June 20th.

I was surprised to find that the data showed 550 stocks out of 2083 companies - over 25% - with no data for P/E ratios, meaning that these companies had lost money over the preceding 12 months.

The remaining 1,533 stocks have an average P/E ratio of 41.5!

The median P/E is 21.6, since this distribution is skewed to the "right" with a zero lower bound. Therefore, I took a "trimmed mean" measurement of the P/E ratios by cutting off the top and bottom 2.5% stocks.

This left 1455 stocks, and these stocks had an average P/E ratio of 29.5, or an earnings yield (E/P) of 3.5%.

Damodaran shows a historical equity risk premium of anywhere from 4.62% to 2.30%, based on the geometric average stock return compared to Treasury bonds. Currently, 10-year US Treasury yield is fluctuating around 2.3%.

2.3% + 2.3% = 4.6% = 21.7 P/E (Lowest Equity Risk Premium)

2.3% + 4.62% = 6.92% = 14.5 P/E (Highest Equity Risk Premium)

Remember, these figures do not included 550 stocks that lost money over the last year, which would lower the aggregate earnings of an equally weighted index - that is, the "E" in P/E - thereby making the P/E ratio even more expensive.

This data shows that stocks on average are expensive, especially on an equally weighted basis. A possible trade to research is long cap-weighted "value" stocks (low P/E companies) and short equal-weighted indexes, which have a high P/E in aggregate.

Supporting Documents

  1. NYSE_stocks.xls

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.