Global Price-Earnings Ratio Is Pretty Heady Stuff

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The price-to-earnings ratio (P/E ratio) is the ratio for valuing a company that measures its current share price relative to its per-share earnings (EPS). The price-to-earnings ratio is also sometimes known as the price multiple or the earnings multiple.

P/E ratios are used by investors and analysts to determine the relative value of a company's shares in an apples-to-apples comparison. It can also be used to compare a company against its own historical record or to compare aggregate markets against one another or over time.

• The price-earnings ratio (P/E ratio) relates a company's share price to its earnings per share.
• A high P/E ratio could mean that a company's stock is over-valued, or else that investors are expecting high growth rates in the future.
• Companies that have no earnings or that are losing money do not have a P/E ratio since there is nothing to put in the denominator.
• Two kinds of P/E ratios - forward and trailing P/E - are used in practice.

Now the following list shows the international associations' price-earnings ratio based upon their business companies.

India 24.5

The United States 21.3

Middle East  17.0

Europe 15.2

Other Asia 13.6

Americas 11.0

China 11.0

Africa  10.0

Hong Kong, separately 10.6

Personally, I always thought it was better to have a high price-earnings ratio than a lower one. The price-earnings for the weighted norm is 16.4 of which the U.S. accounts for about 50% of that weight. Even if the U.S. is overpriced (which in the current case is not true) it will still be reflecting an investor's perspective on where the more growth opportunities than the low-price-to-earnings ratio companies. Think on that for a while. 

This goes along with what Warren Buffett said to his stockholders yesterday or today. He said he would never bet against the United States. He is absolutely right straight on. Why would you bet against the United States with the above kind of numbers.

In addition, it is interesting to look at the price-earnings ratio by business category, because that tells you something about that, too. Here are how those numbers play out.

Health Care 26.9

Information Technology 25.1

Consumer Staples 24.9

Consumer Discretionary 22.4

Telecommunications .18.6

Energy 15.7

Utilities 15.4

Industrials 15.2

Materials 14.0

Finance 9.2

With the weighted norm again being 16.4.

Both of the above lists is "pretty heady stuff" so you should make sure other people in your economic globanomic group either already have this information or you should show this to them. Both of the above listings show you what the "people with the money" think about the different international groups and the way money is invested in different business categories.

In other words, this view can be used year after year to see how the "money people" have changed their views about the future. It should be part of the big Electronic Global Stockmarket Board (EGSB) that I have referred to before in other articles and writings.