"The whole entire market? Based on what valuation metric?"
it's really pretty simple just based on the good ol' P/E ratio
let's take the S&P... currently it trades at a P/E of 31 based on (GAAP) EPS of $28.00... notice I don't factor in "pro-forma" eps, which is nothing more than an accounting trick imo
current GAAP estimates for 2003 are $34.86/share, a 25% increase over 2002.
have you noticed all the warnings and downward revisions lately from various companies?
have you noticed a LOT of bad economic news has been ignored lately?... no time for silly economic news! we gotta get our war rally on!
so, obviously, EPS are not going to meet those rosy forecasts
back to the P/E,
the historical P/E ratio has ranged from 10-20 (except during bubble peaks and bear troughs) ... 10 being on the undervalued side and 20 on the pricey side
so, even IF those rosy forecasts came true the historical P/E ratio is overvalued
now, this is not an opinion... this is historical FACT, this is where the valuation metrics have ranged throughout history
BTW, I didn't even bring up the issue of option expensing, pention fund shortfalls, goodwill & debt issues, etc... which when addressed will further erode the REAL eps
So, on what valuation metric do you base that the markets are "undervalued"??? |
