Which indices grow out of the S P 500
Where can I find the price / earnings ratio (P / E) for the S&P 500 and DJIA?
When it comes to valuing stocks, the price-earnings ratio (P / E ratio) is still one of the oldest and most widely used measures.
The P / E ratio is calculated by dividing the company's share price by its earnings per share. The higher the P / E ratio, the more expensive the profit.
Nevertheless, the P / E ratio is the only value that does not provide an overall view of how expensive the stock is.
The comparison within the company's industry or a clear market index, such as the S&P 500 or the Dow Jones Industrial Average (DJIA), is also important.
Industry statistics can be found on financial websites such as Yahoo! Find Finance (or in Germany: Yahoo! Finance).
If the P / E ratio of the company differs significantly from the P / E ratio that is usual in the industry, this should be questioned as an investor.
For example, if the company's P / E ratio is twice the industry-specific average P / E ratio, investors should act cautiously.
Because no company can grow faster in the long term than the entire industry in which it is located.
Calculating the P / E ratio of an index turns out to be a little trickier because it divides the total price of the index by the total profit.
Many financial websites do not help here either, as they only list the P / E ratios of individual companies.
So only a look at the publisher's website helps, such as the Standard & Poor’s or the Dow Jones website.
On the other hand, the P / E ratio of the index can also be estimated using the P / E ratio of a listed index fund (ETF) that is closely linked to the index.
Although this estimate is less precise, it is much easier to find out.
An example: The P / E ratio for the Wilshire 5000 Index can be determined using the Nasdaq 100 or using the Vanguard Exchange-Traded Funds (VIPERS). The VIPERS are a group of ETFs issued by Vanguard.
This estimate can also be related to the DJIA and the S&P 500.
Still, the P / E ratio of an ETF is not the same as that of an index. This discrepancy arises from the fees that are charged for an ETF.
In addition, ETFs are traded on the stock market. Thus, both the underlying index and regular price fluctuations ensure that their price fluctuates. After all, the ETF acts like a normal stock.
Even so, the returns of the ETF and the index are often close to one another.
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