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We take a look at the monthly PE ratio of the JSE All Share Index over time. We also calculate a 13 term moving average for the JSE All Share PE ratio in order to determine if the current PE ratio is above or below the longer term trend.
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So is the current JSE All Share PE ratio above or below its longer term average?
The line chart below shows the monthly JSE All Share PE ratio since the start of 2008. It also provides a 13 term moving average of the monthly PE ratio to give readers a better idea of the longer term average PE ratio the market is trading at.
The average PE ratio for the JSE All Share Index since the start of 2008 is sitting at 16.8. In February 2019 the JSE All Share PE ratio was trading at 17.33, above the long term average of 16.8 mentioned earlier but well below the 13 term moving average which is sitting at 18.45.
What this says about the numbers is the fact that over the longer term the PE ratio has tended higher, while over the shorter term the average PE ratio of the JSE All Share has declined sharply, As the blue and the 13 term moving average shows.
What this says about the numbers is the fact that over the longer term the PE ratio has tended higher, while over the shorter term the average PE ratio of the JSE All Share has declined sharply, As the blue and the 13 term moving average shows.
The summary below shows the average PE ratio per year for the JSE All Share Index:
So the average JSE All Share PE ratio for 2019 is substantially lower than the levels reached on 2014-2018. But this does not mean that the market is cheap. Company profits have been declining in recent months and years and the market has been punishing stocks that disappointed heavily. And siginficant share price declines leads to lower PE ratios. But the weakness in earnings and profits for locally listed stocks might continue for a sustained period of time, based on our slow growing economy. This a lower than long term average PE might be expected as a lower PE with slower profit growths is the same as a market with a higher PE but where earnings are growing faster.
So dont be fooled into thinking just because the PE of the market is lower than what it was say 3 years ago, it might not mean it is a better time to buy now than it was 3 years ago. There is a reason the market is trading at its current PE and investors should take note if this. And as we stated in the past looking at the PE ratio as a valuation method is a very crude way of doing it, and we prefer to focus on the fundamentals of individual shares of which looking at their PE ratio and comparing it to the overall market is one of many factors considered before deciding if a stock is worth making a long term investment in.
- 2008: 13.06
- 2009: 12.30
- 2010: 16.83
- 2011: 14.38
- 2012: 13.41
- 2013: 17.27
- 2014: 17.55
- 2015; 18.52
- 2016: 21.95
- 2017: 20.44
- 2018: 18.89
- 2019: 17.10
So the average JSE All Share PE ratio for 2019 is substantially lower than the levels reached on 2014-2018. But this does not mean that the market is cheap. Company profits have been declining in recent months and years and the market has been punishing stocks that disappointed heavily. And siginficant share price declines leads to lower PE ratios. But the weakness in earnings and profits for locally listed stocks might continue for a sustained period of time, based on our slow growing economy. This a lower than long term average PE might be expected as a lower PE with slower profit growths is the same as a market with a higher PE but where earnings are growing faster.
So dont be fooled into thinking just because the PE of the market is lower than what it was say 3 years ago, it might not mean it is a better time to buy now than it was 3 years ago. There is a reason the market is trading at its current PE and investors should take note if this. And as we stated in the past looking at the PE ratio as a valuation method is a very crude way of doing it, and we prefer to focus on the fundamentals of individual shares of which looking at their PE ratio and comparing it to the overall market is one of many factors considered before deciding if a stock is worth making a long term investment in.