Investing in Undervalued Stocks

S&P 500 PE Ratio - How the Price Earnings Ratio Helps You to Valuate the Companies in the Standard and Poor 500

When it comes to determining if the current valuation of the overall stock market is expensive or cheap, the price-to-earnings ratio of the S&P 500 is one of the oldest and most frequently used metrics.

The chart1 below shows that a S&P 500 PE Ratio below 10 is cheap and above 20 is expensive.

Price/Earnings Ratio of the S&P 500

How to Calculate the S&P 500 PE Ratio

To calculate a single company's price earnings ratio you have to divide the company's current share price by its last year's earnings per share. To calculate the S&P 500 PE ratio you have to make a list of all the companies in the standard and poor 500 and add all their individual share prices and all their last year's earnings per share to make the same calculation. Of course, this is far too much work. Fortunately, I found a website on which you can see today's S&P 500 price earnings ratio, just see the note at the bottom of this page.


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Note: In order to see today's S&P 500 PE ratio you can visit: http://www.multpl.com.


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1 Source: http://simplycharts.files.wordpress.com/2007/03/sp-500-historical-chart-illustrating-secular-trends.jpg

About Jeroen Snoeks

Jeroen Snoeks - UndervaluedEquity.com

Jeroen Snoeks is the founder of UndervaluedEquity.com, a website for investors passionate about investing in undervalued stocks. Through UndervaluedEquity.com, he shares his experience and knowledge and will soon reveal his personal stock portfolio.

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