An Update on P/E ratios – are they high? Nope . . .

The S&P 500 is up 11.8% year to date.  This is the best start to a year since 1998.  One might reasonably ask if the P/E ratio has become elevated to a degree that would suggest a correction is due.  The short answer is NO.  The P/E ratio for the S&P 500 remains below the median since 1926 of 15.33X and well below the median since 1982 of 17.08X.  In March of 1998, when we last had as robust a start to the year, the P/E ratio was 24.8X.  The LTM earnings growth was 3.4%.  12 months later earnings grew 7.4%.  Today’s LTM earnings are up 5.3%.  The estimated earnings growth for 2012 is 19.4%.  The S&P 500 would have to be at 1,500 to approximate 15.3X times earnings, 1,660 to approximate 17X.  Jeb Terry, Sr. March 28, 2012

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