It’s said that the numbers don’t lie yet corporations are adept at massaging them to meet the desired outcome each quarter with various one off accounting gimmicks and such. Particularly useful in meeting the analysts expected numbers each quarter who are also in on the deal starting out with a high estimate of earnings at the beginning of the quarter which sounds good only to whittle the figure down as the reporting day approaches helping to maintain the fiction of modest P/E or Price Earnings ratios. To wit Mike Shedlock over at the MishTalk Blog noted the following with respect to P/E Ratios. With the Russell 2000 Index the as reported 2015 P/E Ratio was an eye opening 3,474 based on incomplete data, as more info came in it dropped to 691. Using the magic of accounting pro forma earnings and throwing out all the negative or money losing companies it drops to a much more reasonable 17.71. Similar but not nearly as dramatic results can be found with the S&P 500 Index using as reported earnings its P/E Ratio is 23.53 while forward looking cuts it down just 17.55, keep in mind that analysts habitually over estimate forward earnings except at market bottoms when the do the opposite.
This is Caleb Lawrence Registered Investment Adviser Scotts Valley Drive and Willis Road in the Scotts Valley Plaza, Suite 202 or call me toll free at 888-RICH PIG / 888-742-4744.
You can catch me on the radio at noon each business day as well on California’s central coast. KPIG 107.5 FM in the Monterey Bay or KPYG 94.9 FM in San Luis Obispo.
Advisory services offered through Caleb Lawrence Registered Investment Adviser Inc.