How to construct the market PE ratios?

Question

I am wondering way of construction the market PE ratios from the individual stocks

Answer 1

Hi, I'm not clear if you are trying to calculate a PE ratio for a particular stock, or the whole U.S. market. I assumed you where refering to the entire market and in that case the S&P 500 would be a good place to look because as a percentage it is a very large portion of the entire stock market. Professor Robert Schiller, a former Yale professor and respected economist keeps historical market data on the web for the S&P 500:
http://www.econ.yale.edu/~shiller/data/ie_data.htm
Click on the "stock tab". You could calculate the PE ratio yourself. Becuase it is historical data, you could also compare different years. If you look at Schiller's pe ratio, be aware that he uses a very unorthadox method for computing pe ratios, if memory serves, his method uses the inflation adjusted average earnings from the last ten years.

Answer 2

I can't get into the math because my mind is a little fuzzy on the exact equations & calculations that need to be used (although if you are asking at its most basic level it's just current price divided by forward EPS), but it's essentially derived from anticipated future growth in a company's earnings. The faster a company is growing, the higher a company's EPS will be valued and thus a higher valued stock. As an example, notice how a utltities company like Con Edison has a really small PE (because it doesn't really grow that much), whereas a tech company like Google has a really high PE (since its growing at about thirty percent).
Hoped this helped!

Answer 3

Its Price Earning (p/e) ratio...... PE ratio of a company shows its premium value in the market....... Good and best companies have high P/E. Suppose if a company P/E is 4 then its assumed that if that company continue to operate its operations and continues to get a similar profit/loss during the whole 4 year period only then ur invested amount in that company comes at par... Its simple,again suppose u have 2 frnd....1 u know from a long time and u can blindly rely upon and the second u dont know much about or u r not that much reliable on second friend.... and one day,both the friends ask u for Rs.10 and assuming their credilibility u allows 1st friend 2 pay that amt 2 u within 4-5 years which means 4-5 P/E, whereas, u asks ur second friend to pay that amount within 1year that means the second friend have 1 p/e, and so on........... GOT..............So, P/E shows the credilibity of a company....

Answer 4

To construct a P/E ratio, simply divide the price of the stock by the earnings per share. For example, Yahoo's stock price is 26.34 divided by earnings per share of .79

26.34/.79 = 33.34 is the P/E for Yahoo. A better figure to look at would be the forward P/E.

As for why you pay more for tech companies with higher P/E's is that they grow faster (earnings wise) than utility companies, and you pay for growth. That is why stocks that have high earnings growth also have higher P/E's.

Each industry has about the same valuation standards. For instance, utility companies usually carry P/E's around the high teens to low 20's. This is in part beause their earnings are predictable and they pay a dividend. Tech companies, on the other hand, take all their earnings and try to grow by getting new and better products out to customers.

Answer 5

Are you asking how to calculate the P/E ratio of an individual stock? If so, here is the formula:

Price per share divided by earnings per share.

finance.yahoo.com

Answer 6

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Answer 7

PE IS PRICE/ EARNINGS PER SHARE
PRICE IS CURRENT MARKET PRICE
EARNINGS PER SHARE IS TOTAL NUMBER OF SHARES/ PROFIT AFTER TAX