S&P 500 & Sectors: Price-to-Economic Book Value Looks Cheaper But Still Not Cheap

Articles From: New Constructs
Website: New Constructs


Investment Analyst

New Constructs

The trailing PEBV ratio for the S&P 500 fell from 1.6 on 6/30/21 to 1.2 on 5/16/22 and is at its second lowest level since June 30, 2016.

This report is a free, abridged version of  S&P 500 & Sectors: Price-to-Economic Book Value Looks  Cheaper But Still Not Cheap, one of our quarterly series on fundamental market and sector trends.

This report [1],[2] leverages our cutting-edge Robo-Analyst technology to deliver proven-superior[3] fundamental research and support more cost-effective fulfillment of the fiduciary duty of care.

S&P 500 Trailing PEBV Ratio Falls to 2016 Levels

The trailing PEBV ratio compares the S&P 500’s expected future profits (as reflected in its price) to its economic book value as of 5/16/22. The S&P 500’s PEBV ratio of 1.2 implies the profits (NOPAT) of the S&P 500 will increase 20% from trailing-twelve-month (TTM) through 1Q22 levels.

See Figure 1 in the full version of our report for the chart of the PEBV ratio for the S&P 500 from December 2004 through 5/16/22.

Key Details on Select S&P 500 Sectors

Five S&P 500 sectors, Telecom Services, Healthcare, Financials, Basic Materials, and Energy trade below their economic book value. The Consumer Non-cyclicals sector trades at its economic book value. The Telecom Services sector has the lowest trailing PEBV ratio among all eleven S&P 500 sectors based on prices as of 5/16/22 and financial data from 1Q22 10-Qs.

A trailing PEBV ratio of 0.5 means the market expects the Telecom Services sector’s profits to decline by 50% from TTM through 1Q22 levels. On the flip side, investors expect the Real Estate and Consumer Cyclicals sectors (trailing PEBV ratios of 3.5 and 1.8) to improve profits more than any other S&P 500 sectors.

Below, we highlight the Basic Materials sector.

Sample Sector Analysis[4]: Basic Materials: Trailing PEBV Ratio = 0.9

Figure 1 shows the trailing PEBV ratio for the Basic Materials sector fell from 1.9 as of 6/30/21 to 0.9 as of 5/16/22. The Basic Materials sector market cap fell from $1.0 trillion as of 6/30/21 to $871 billion as of 5/16/22, while its economic book value rose from $556 billion as of 6/30/21 to $960 billion as of 5/16/22.

Figure 1: Basic Materials Trailing PEBV Ratio: December 2004 – 5/16/22

Basic Materials Trailing PEBV Ratio: December 2004 – 5/16/22

Sources: New Constructs, LLC and company filings. 

The May 16, 2022 measurement period uses price data as of that date and incorporates the financial data from 1Q22 10-Qs, as this is the earliest date for which all the calendar 1Q22 10-Qs for the S&P 500 constituents were available. 

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This article originally published on May 26, 2022.

Disclosure: David Trainer, Kyle Guske II, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

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[1] We calculate these metrics based on S&P Global’s (SPGI) methodology, which sums the individual S&P 500 constituent values for market cap and economic book value before using them to calculate the metrics. We call this the “Aggregate” methodology. Get more details in Appendices I and II.

[2] Analysis in this report is based on the latest audited financial data available, or 1Q22 10-Qs in most cases. Price data for the current period as of 5/16/22.

[3] Our research utilizes our Core Earnings, a more reliable measure of profits, as proven in Core Earnings: New Data & Evidence, written by professors at Harvard Business School (HBS) & MIT Sloan and published in The Journal of Financial Economics.

[4] The full version of this report provides analysis for every sector like what we show for this sector.

Click here to download a PDF of this report.

Disclosure: New Constructs

David Trainer, Kyle Guske II, Sam McBride, Matt Shuler, Alex Sword, and Andrew Gallagher receive no compensation to write about any specific stock, style, or theme.

About New Constructs
New Constructs leverages cutting-edge Robo-Analyst technology to provide insights and diligence on stocks, ETFs, mutual funds & debt issuers. Highly-respected public and private institutions believe in our concepts::

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