And if
recent peak earnings don't represent the true current earnings power of the index, the price to earnings figures may be overstating the attractiveness of their valuations.
Not exact matches
John Lynch, chief investment strategist for LPL Financial, wrote in a
recent note to clients: «
EARNINGS PEAK?
Compared to the
recent record high
peak set in April 2014 ($ 2,295 per week), average
earnings are down nearly 10 per cent.
The reason the S&P 500's
recent performance looks so good is that
earnings cratered for six quarters (stretching from that
peak in late 2014 to early 2016), thanks to a collapse in oil prices that pushed
earnings for energy giants deeply into the red.
Analysts are a bit concerned that margins are
peaking even though
earnings may go up due to the
recent tax reform.»
The historical 6 %
peak - to -
peak growth rate of S&P 500
earnings is very robust - it holds for the most
recent decades, and for the past century.
Likewise, Aqua America (WTR) saw its return on invested capital
peak at 4.74 % in the most
recent trailing twelve month period, and trades at 18.3 times forward
earnings estimates.
And the
recent extremes in the median price -
earnings ratios (P / E) and median price - sales ratios (P / S) actually went beyond the
peaks hit in 2000 and in 2007.
Thanks to unusually high debt levels and unusually low labor compensation in
recent years, the
earnings peak in 2007 was based on profit margins that were about 50 % above the historical average, and which have now collapsed.