EC What S&P 500 Sectors Are Trading Below Economic Book Value

This report analyzes[1] market cap, economic book value, and price-to-economic book value (PEBV) ratio for the S&P 500 and each of its sectors.

S&P 500 PEBV Ratio Jumps to Highest Level Since September 2018

The PEBV ratio for the S&P 500 rose from 1.1 at the end of 2019 to 1.7 through 2Q20, or its highest level since mid-2018, and one of the highest levels since 2004. See Figure 1. This ratio measures the level of expectations for future profits compared to existing profit. At 1.7, the S&P 500’s valuation implies the profits of the S&P 500 will increase 70% from current levels.

Only one S&P 500 sector trades below its economic book value (excluding Energy, which has a negative economic book value), as we’ll show below.

Figure 1: TTM PEBV Ratio for the S&P 500 From December 2004 – 8/11/20

Sources for all images: New Constructs, LLC and company filings. 

Ranking the S&P 500 Sectors by PEBV Ratio

Figure 2 ranks all 11 S&P 500 sectors by change in PEBV ratio from the end of 2019 to 8/11/20.

Figure 2: TTM PEBV Ratio as of 8/11/20 by Sector


With a PEBV of 0.9, investors expect the Financials sector’s profits to decline, permanently, by 10% from current levels. On the flip side, investors expect the Real Estate sector to improve profits more than any other S&P 500 sector.

Details on Each of the S&P 500 Sectors

Figures 3-13 show the PEBV ratio trends for every sector since 2004.

We present the components of PEBV ratio, market cap and economic book value, for the S&P 500 and each S&P 500 sector in Appendix I.

Appendix II provides additional aggregated PEBV ratio analyses that adjust for company size/market cap.

Basic Materials: PEBV Ratio = 2.1

Figure 3 shows the PEBV ratio for the Basic Materials sector has consistently fallen since 2017 even after the market bounce back since March 2020. The Basic Materials sector PEBV ratio is the highest since June 2018 and has rarely been higher since 2004. Since the end of 2019, the sector market cap increased from $693 billion to $701 billion TTM while its economic book value fell from $377 billion to $334 billion over the same time.

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This article originally published on October 6, 2020.

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