Understanding PE ratios
closed
Conor MacNeil
marked this post as
closed
Closing as no reply for 3+ days
Conor MacNeil
Hey Robert, the source is based on the underlying fund-holdings P/E data, sourced by CapIQ, and then we calculate them. Our method likely differs from Morningstar.
We calculate ETFs P/E and several other ratios using a harmonic weighted average to minimize the impact of outliers. We use market capitalization, earnings estimates, and portfolio weights for each stock in the ETF. We normalize the weights so they sum to 100%, then compute each stock's Earnings-to-Price (E/P) ratio by dividing estimated earnings by the current stock price, capping these ratios at a maximum of 1 to prevent skewing. We calculate a weighted average of the capped E/P ratios using the normalized weights, and the reciprocal of this average gives us the ETF's overall P/E ratio based on next twelve months (NTM) earnings estimates. To ensure accuracy, we adjust the ETF constituents daily to reflect any changes and use the most recent market data.
O
Organic Yak
Conor MacNeil Thanks, Conner. Then can you help me understand why NTM is so much lower than LTM? This spread seems to run through all the ETFs I track.
Conor MacNeil
Organic Yak I'd need to try proxy the calculation myself, but my assumption would be that the fund's harmonic weighted average NTM EPS estimates are higher than the LTM GAAP EPS.
It could be that, as EPS estimates are becoming more optimistic we are at a stage where most companies look cheaper on a forward looking basis than they are trailing.
O
Organic Yak
Conor MacNeil Yeah, but that much cheaper? Can you see my WL?
Conor MacNeil
Organic Yak: I don't need your watchlist, no.