As of 05/23/2024
Indus: 39,065 605.78 1.5%
Trans: 15,009 185.73 1.2%
Utils: 924 20.84 2.2%
Nasdaq: 16,736 65.51 0.4%
S&P 500: 5,268 39.17 0.7%

YTD
+3.7%
5.6%
+4.8%
+11.5%
+10.4%

41,000 or 38,500 by 06/01/2024
16,050 or 15,300 by 06/01/2024
960 or 900 by 06/01/2024
17,250 or 15,850 by 06/01/2024
5,500 or 5,100 by 06/01/2024

As of 05/23/2024
Indus: 39,065 605.78 1.5%
Trans: 15,009 185.73 1.2%
Utils: 924 20.84 2.2%
Nasdaq: 16,736 65.51 0.4%
S&P 500: 5,268 39.17 0.7%

YTD
+3.7%
5.6%
+4.8%
+11.5%
+10.4%
 
41,000 or 38,500 by 06/01/2024
16,050 or 15,300 by 06/01/2024
960 or 900 by 06/01/2024
17,250 or 15,850 by 06/01/2024
5,500 or 5,100 by 06/01/2024
 
My book, Fundamental Analysis and Position Trading, discusses fundamental analysis including the P/E ratio. It includes performance statistics, starting on page 67.
If you click on the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.
$ $ $
This page reviews results from a study of price to earnings ratio.
The price to earnings ratio is perhaps the most widely followed and used financial ratio.
A study of the P/E ratio (price divided by earnings), shows that stocks with P/E ratios below the median of all stocks studied outperformed those with higher P/E ratios 71% of the time. In other words, if you bought a stock with a low P/E ratio and held it for 1 to 5 years, you would have made money 71% of the time when compared to stocks with higher P/E ratios. The finding that low P/E stocks outperform agrees with common investment knowledge.
I used the Value Line investment survey and typed in their average annual P/E ratio to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008. Value Line calculated the "Average Annual P/E ratio" by "dividing the average price for a year with the actual reported earnings for that year.
After completing the database, I logged the closetoclose price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range and some years did not have earnings to report, so they had no P/E ratio. Years with no P/E ratio were excluded. The price change measured from the close on the last trading day of each year unless the value was unavailable (in which case, I used the start of the new year). Years 2008 and later are not included since the year has not completed yet.
For example, in 1992, I found the median P/E ratio to be 17.05 then I logged the 1 year price change (end 1992 to end 1993) for stocks with P/E ratios above and below the median. Stocks with P/E ratios below the median showed average rises of 9.9% compared to rises of 1.6% for high P/E stocks. I then looked at the average price change over 2 years (end 1992 to end 1994). The low P/E stocks dropped an average of 3.8% compared to a loss of 4.7% for higher P/E stocks. And so on, up to 5 years. Then I changed the base year to 1993 and conducted the same experiments. The results are shown in the next section.
The following table shows the results.
Base Year  P/E  Median P/E  1 year  2 years  3 years  4 years  5 years  Samples 
1992  High  17.05  1.6%  4.7%  3.445%  12.1%  16.8%  29 
Low  9.9%  3.8%  3.442%  14.2%  21.0%  29  
1993  High  18.9  19.6%  1.0%  13.8%  19.7%  7.4%  34 
Low  3.6%  7.9%  18.1%  25.6%  21.3%  32  
1994  High  18.3  20.3%  33.5%  34.9%  19.1%  22.2%  34 
Low  21.6%  31.8%  38.5%  25.9%  24.7%  34  
1995  High  17.5  38.9%  39.4%  21.0%  24.1%  24.8%  35 
Low  36.0%  39.3%  19.7%  16.1%  15.8%  35  
1996  High  18.4  27.5%  3.9%  10.8%  15.0%  8.4%  41 
Low  35.1%  7.5%  5.9%  8.5%  9.3%  43  
1997  High  18.7  7.4%  2.1%  7.3%  4.7%  1.9%  44 
Low  21.5%  4.9%  1.7%  1.9%  0.7%  46  
1998  High  18.2  16.6%  7.5%  8.6%  1.6%  8.3%  58 
Low  24.0%  22.7%  14.1%  8.9%  15.0%  59  
1999  High  18.6  4.2%  3.5%  3.6%  4.4%  8.1%  58 
Low  15.9%  14.8%  8.1%  18.0%  22.4%  58  
2000  High  15.3  0.6%  8.7%  2.1%  5.8%  9.5%  62 
Low  8.2%  2.1%  14.5%  20.4%  20.3%  64  
2001  High  19  15.6%  4.1%  8.2%  11.1%  12.2%  62 
Low  3.9%  14.8%  22.8%  22.6%  24.6%  63  
2002  High  18.65  25.9%  24.4%  24.0%  22.6%  23.4%  65 
Low  43.1%  42.3%  34.5%  34.8%  23.7%  65  
2003  High  17.2  16.4%  16.7%  15.7%  14.1%  69  
Low  28.0%  20.4%  21.4%  16.2%  69  
2004  High  18.95  24.5%  18.8%  20.4%  74  
Low  9.6%  14.1%  7.6%  74  
2005  High  18.3  12.0%  16.7%  77  
Low  16.7%  5.7%  81  
2006  High  17.35  15.6%  79  
Low  2.9%  79 
Yes, I know. I dislike long tables, too. Let's take an example using 2006. Stocks with a P/E ratio above the median of 17.35 had gains averaging 15.6% in 2007 compared to gains of 2.9% for stocks with P/Es at or below the median 17.35. No more results appear for that row because the years had not ended when the study was done. There were 79 samples that qualified for the study.
Years that performed poorly are 1995 (0% winners), 1996 (66% winners), 1997 (0%), 2004 (0%), 2005 (50%) and 2006 (0%). Years 2004 and more recent have fewer completed entries, as the table shows. The low sample counts may be responsible for the performance.
I consider these results preliminary since I intend to expand the database and then publish my findings.
 Thomas Bulkowski
Support this site! Clicking any of the books (below) takes you to
Amazon.com If you buy ANYTHING while there, they pay for the referral.
Legal notice for paid links: "As an Amazon Associate I earn from qualifying purchases."
My Stock Market Books

My Novels

How was Colonel Sanders a typical male? All he cared about were legs, breasts, and thighs.