Earnings Beats With Multiple Expansion

As I’ve noted before, this has been a pretty good earnings season. More than 70% of earnings reports have topped estimates. The market, however, has largely failed to respond. The stock market slid during the first half of April. All told, $770 billion in market value was erased.

The stock market continues to be undervalued versus its long-term average.

The S&P 500 slid last year to a two-year low of 11.9 times reported profit after the Fed’s second round of quantitative easing ended, Europe’s crisis intensified and American lawmakers debated raising the federal debt limit. While the gauge’s multiple has since rebounded to 14.3, it’s still below the six- decade historical average of 16.4, Bloomberg data show.

That means that the S&P 500 can rally close to 15% and still be inline with the long-term average.

Posted by on April 30th, 2012 at 9:45 am

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.