Hi, I am doing some simple ratio analysis on a few companies in the Variety store sector (Target, Walmart, Costco in particular). I noticed that during recession periods, the PE ratios are high compared to other years. I did some searches online that noted that PE multiples are high during recession years, but few gave any reason. I also read the opposite that PE ratios are usually low in recession years in a few online sources. Which is the standard fact, or is it different by industry? Are they higher because of Poor earnings in those years which would therefore cause a lower EPS and inflate PE? Thanks for the help! Also, does anyone happen to know typical PE multiples for the industry as a whole (variety store) during the past 20 years or so? From what I am getting, it seems 20-35X is common, but I would just like to confirm it.
Hey Bauer, aren’t you supposed to be in jail for your 3rd DUI?
My theory why the P/E would be high for these companies is because earnings decrease during a recession for virtually every large company (sorry theory of -1 Beta) which increases the PE; AND there is usually high investor demand for these sort of staple consumer stocks during a recession which would push up their relative P/E Just my though? Any consumer staple stock analysts out there who would like to comment?
CFA_Halifax Wrote: ------------------------------------------------------- > My theory why the P/E would be high for these > companies is because earnings decrease during a > recession for virtually every large company (sorry > theory of -1 Beta) which increases the PE; AND > there is usually high investor demand for these > sort of staple consumer stocks during a recession > which would push up their relative P/E > > Just my though? Any consumer staple stock > analysts out there who would like to comment? I concur .
stock prices are leading indicators. (Most likely because they’re a claim on future cash flows.)
Actually, I am Theo on here, but the site wouldn’t let me log in! So here I am. Hopefully Chad can clear that up. Thanks, CFA- That makes a lot of sense. I noticed NI numbers were lower for some companies during those years, of course. Which then attributed to a lower EPS. And that attributes to a higher PE. Although it seemed Walmart had the PE spikes during the recessions, yet their earnings grew every year. That may describe your other point that during bad times people demand these stocks. I appreciate the help. If anyone may know anything about average PE for the variety store industry, it would be of great help as well.
Molodovsky effect