It doesn't matter whether one looks at basic measures such as
median valuation multiples over the past (bull market) decade, or whether one uses a more complex discounted cash flow model.
Not exact matches
These Fed - induced speculative
valuations are now evident across the board, as the
median price / revenue
multiple on S&P 500 components (as well as S&P 1500 components) is now the highest in history, easily exceeding the 2000 peak.
The green, orange, yellow, and red lines represent the projected total returns for the S&P 500 assuming terminal
valuation multiples of 20, 14 (average), 11 (
median) and 7 times normalized earnings.
While the overall equity - market volatility could impact sentiment and the
valuations that investors are willing to pay, our small - and mid-cap forecasts already assume that
multiples will revert to less than the historic
median — so our outlook already is fairly conservative.
As usual, I don't place too much emphasis on this sort of forecast, but to the extent that I make any comments at all about the outlook for 2006, the bottom line is this: 1) we can't rule out modest potential for stock appreciation, which would require the maintenance or expansion of already high price / peak earnings
multiples; 2) we also should recognize an uncomfortably large potential for market losses, particularly given that the current bull market has now outlived the
median and average bull, yet at higher
valuations than most bulls have achieved, a flat yield curve with rising interest rate pressures, an extended period of internal divergence as measured by breadth and other market action, and complacency at best and excessive bullishness at worst, as measured by various sentiment indicators; 3) there is a moderate but still not compelling risk of an oncoming recession, which would become more of a factor if we observe a substantial widening of credit spreads and weakness in the ISM Purchasing Managers Index in the months ahead, and; 4) there remains substantial potential for U.S. dollar weakness coupled with «unexpectedly» persistent inflation pressures, particularly if we do observe economic weakness.
The S&P 500 registered a record high after an advancing half - cycle since 2009 that is historically long - in - the - tooth and already exceeds the
valuation peaks set at every cyclical extreme in history but 2000 on the S&P 500 (across all stocks, current
median price / earnings, price / revenue and enterprise value / EBITDA
multiples already exceed the 2000 extreme).
In actuality, the
median constituent of the S&P 500 has a Forward P / E of 18.4 — a
multiple that rests in the 99th percentile of historical
valuation levels.
They also performed a comparison with current
valuations for a (select) group of public investment management firms — on average, the TAM transaction's valued at 75 % of the minimum
multiple & just 49 % of the
median multiple.