Distribution of Stocks by PE

There is a lot of talk recently that stocks might be getting expensive. Stock prices have climbed since 2009, so it is definitely reasonable to start questioning stock valuations. I’m starting to have some trouble finding obviously undervalued stocks.

I thought a quick way to check on the scarcity of value opportunities would be to look at the distribution of stocks by the price to earnings ratio. Below I have included a histogram of the number of stocks in each of ten equal buckets of trailing twelve-month PE excluding extraordinary items between 3 and 99.

Distribution of Stocks by PE – April 16, 2014

Distribution of Stocks by PE - April 16, 2014

As you can see above, most stocks are now trading above a PE of 12.5.  We can compare this to the PE distribution a year earlier in the chart below.

Distribution of Stocks by PE – April 16, 2013

Distribution of Stocks by PE - April 16, 2013

There were significantly more stocks trading below a PE of 12.5 last year.  For a really stark contrast, we can compare both of these distributions to the price earnings ratios of stocks after the market crash in 2009.

Distribution of Stocks by PE – April 16, 2009

Distribution of Stocks by PE - April 16, 2009

Back in 2009, the lowest decile had the most number of stocks, all trading for a PE of below 12.5.  Finding value opportunities in the market then was like shooting fish in a barrel. If you are interested in looking at other distributions, check out the Factor Tool at Portfolio123.com.

Update:

I got a request to look at 2008 and 2007 distributions for comparison to today’s PE distribution.  Here they are:

Distribution of Stocks by PE – April 16, 2008

PE Distribution 2008

 

Distribution of Stocks by PE – April 16, 2007

Distribution of Stocks by PE - April 16, 2007

It is amazing how similar the 2008 distribution is to the current PE distribution of stocks in the market.  Might this be a warning to investors worth noting?  It sure seems so to me.

What are your thoughts on current stock prices?  Please share your thoughts in the comments section below.

 

Comments

  1. By Tinman

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>