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The rationale for excluding stocks with negative earnings is to prevent
stocks being evaluated on a non-PE basis from skewing the overall PE.
Consider two companies, one a 'normal' company earning $1 and priced at
$25, another an 'asset play' with an appreciating asset that costs $1
per share to maintain and also valued at $25. Total earnings = $1 + -1$
= 0. Total price = $50. PE is, er, infinite.
This made more sense when the market was more 'big-board' focused, so
the losers tended to be either temporary, or true asset plays (oil,
lumber, mining). Remember, too, that on the NYSE you have to have
earnings to get listed, not true for the Naz...
Regards
DanG
Earl Adamy wrote:
>
> One thing I've never understood is the rationale of excluding companies with
> negative earnings from the PE for an index ... kind of like excluding food
> and energy from living costs. To my way of thinking, the earnings of all
> companies in the index should be summed and divided by the index. What we've
> seen to date is price declining at a faster rate than trailing earnings. As
> the effect of multiple quarters of declining earnings accelerates, the PE's
> will quite likely begin rising absent major price drops.
>
> Earl
>
> ----- Original Message -----
> From: "DH" <catapult@xxxxxxxxxxxxxxxxxx>
> To: <realtraders@xxxxxxxxxxxxxxx>
> Sent: Tuesday, February 20, 2001 9:11 PM
> Subject: Re: [RT] Spreadsheet posted - NASDAQ Historical P/E ratio's
>
> > Cool! Thanks Chris.
> >
> > > The 12-month trailing P/E ratio for the NASDAQ 100 as of the end of
> > > January was 45, which only includes stocks with positive earnings.
> >
> > It appears that Morningstar is calculating the P/E about the same way.
> > They show 46 at the end of January for QQQ which is a proxy for the
> > Nasdaq 100. If anyone wants to follow it going forward, the addresss is
> >
> > http://quicktake.morningstar.com/ETF/portfolio.asp?Country=USA&Symbol=QQQ
> >
> > If you include the companies with losses, the spreadsheet shows a 67
> > P/E at the end of January. You could use the 2593 closing price for NDX
> > at the end of January and figure the ratios as the price changes....
> > as of today, 36 excluding losers or 54 including them. Still plenty
> > lofty but a whole lot lower than the 800 recently quoted. :-)
> >
> > The scarier looking one on the spreadsheet is the Nasdaq Comp. Only about
> > half the companies made money. The January P/E was 30 excluding the losers
> > but 96 including them. Not a pretty picture.
> >
> > --
> > Dennis
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxx
> >
> >
> >
> > Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
> >
> >
> >
>
>
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>
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