"On August 28, the S&P 500's price-to-earnings ratio reached a towering reading of nearly 30, the actual number that day was a whisker short at 29.85. Now it's official: Around 3 PM on Monday, September 22, the big cap index sailed beyond that historic barrier, gaining 32 points or 0.48%, a surge that pushed the multiple over the landmark to 30.09."
"PEs deploying both of those benchmarks are faulty, and are constantly misrepresented as evidence that stocks are still reasonably priced, and even that multiples continue harboring scope for expansion. The approach that relies on current operating earnings eliminates taxes, interest and other "real money" items to arrive at EPS that's artificially elevated, since it doesn't count all the expenses on the income statement."
"Multiples tied to analysts' future estimates of EPS perform the same trick in a different way. Since the Street almost invariably issues forecasts that are highly inflated, and that even the prognosticators themselves don't buy, that formulation posits usually unachievable earnings numbers going forward that once again, provide the illusion of friendly investor-cheering valuations. But the only PE that matters is the one that includes all the expenses, and counts only the official profits already in the books."
S&P 500's GAAP price-to-earnings ratio surpassed 30 on September 22, reaching 30.09 after a 0.48% gain. The index had approached 29.85 on August 28. Commonly cited lower P/E figures in the low 20s stem from reliance on operating earnings or analysts' forward EPS estimates. Operating-earnings P/Es omit taxes, interest and other real expenses, inflating reported earnings and understating multiples. Forward-estimate P/Es use highly optimistic forecasts that often prove unachievable, again compressing reported valuations. The most meaningful P/E uses actual GAAP net earnings over the most recent four quarters to reflect true profitability.
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