Mega-Cap Valuations Relative to the Broader Market

Mega-Cap Valuations Relative to the Broader Market

January 28, 2016 Uncategorized
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(Last Updated On: January 18, 2017)

Meb Faber’s twitter feed is a great source to find new research ideas — his followers are very curious.

meb tweets

Today, someone asked about the P/E of mega-cap firms relative to the broader market.

Yang fired up his Bloomberg, conducted some quick excel ninja tactics, and generated the following chart:

top market cap pe

Takeaways:

  • The S&P 500 value-weighted P/E is 16.97
  • The average P/E of the top 100 names by market cap is 46.16 (skewed by some extreme valuations on firms like Amazon)
  • The plot highlights that aside from extreme valuations on a handful of firms, mega-cap valuations aren’t that different than the S&P 500 (which makes sense because they make up the vast majority of the S&P 500’s market cap).


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Definitions of common statistics used in our analysis are available here (towards the bottom)




About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.