Sign up for our daily briefing

Make your busy days simpler with the Axios AM and PM newsletters. Catch up on what's new and why it matters in just 5 minutes.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on the day's biggest business stories

Subscribe to the Axios Closer newsletter for insights into the day’s business news and trends and why they matter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sign up for Axios Pro Rata

Dive into the world of dealmakers across VC, PE and M&A with Axios Pro Rata. Delivered daily to your inbox by Dan Primack and Kia Kokalitcheva.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sports news worthy of your time

Binge on the stats and stories that drive the sports world with the Axios Sports newsletter. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Tech news worthy of your time

Get our smart take on technology from the Valley and D.C. with Axios Login. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Get the inside stories

Get an insider's guide to the new White House with Axios Sneak Peek. Sign up for free.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Catch up on coronavirus stories and special reports, curated by Mike Allen everyday

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Denver news?

Get a daily digest of the most important stories affecting your hometown with Axios Denver

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Des Moines news?

Get a daily digest of the most important stories affecting your hometown with the Axios Des Moines newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Twin Cities news?

Get a daily digest of the most important stories affecting your hometown with Axios Twin Cities

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Tampa Bay news?

Get a daily digest of the most important stories affecting your hometown with the Axios Tampa Bay newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Charlotte news?

Get a daily digest of the most important stories affecting your hometown with Axios Charlotte

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Nashville news?

Get a daily digest of the most important stories affecting your hometown with the Axios Nashville newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Columbus news?

Get a daily digest of the most important stories affecting your hometown with the Axios Columbus newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Dallas news?

Get a daily digest of the most important stories affecting your hometown with the Axios Dallas newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Austin news?

Get a daily digest of the most important stories affecting your hometown with the Axios Austin newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Atlanta news?

Get a daily digest of the most important stories affecting your hometown with the Axios Atlanta newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Philadelphia news?

Get a daily digest of the most important stories affecting your hometown with the Axios Philadelphia newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top Chicago news?

Get a daily digest of the most important stories affecting your hometown with the Axios Chicago newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Sign up for Axios NW Arkansas

Stay up-to-date on the most important and interesting stories affecting NW Arkansas, authored by local reporters

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Want a daily digest of the top DC news?

Get a daily digest of the most important stories affecting your hometown with the Axios DC newsletter.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!
Data: FactSet; Chart: Axios Visuals

A widely followed valuation metric suggests stocks have been getting cheaper over the past year, even as prices have surged to new highs.

Why it matters: When stocks rise and company market caps balloon, it’s tempting to think that the shares must eventually fall in order to get to more reasonable levels.

  • This doesn’t have to be the case when earnings prospects are improving.

The big picture: Perhaps the most widely-used measures of value in the stock market is the price/earnings (P/E) ratio. Simply put, that's the market value of a company divided by its earnings.

  • When the P/E ratio is above some long-term average, the stock is thought to be expensive. If it’s below average, then it’s cheap.
  • For the denominator, it’s common to use “forward” earnings, or the earnings the company is projected to generate in the next 12 months.
  • The P/E ratio can be applied to broad market indexes like the S&P 500.

By the numbers: The S&P 500’s forward P/E touched a high of 23.6 on August 28, 2020, according to FactSet. That day, the S&P closed at 3,508. Since then, the forward P/E has trended lower, registering at 21.2 as of July 30.

  • During that period the S&P surged 25% to 4,395.

Between the lines: This dynamic has largely been driven by months of improving expectations for earnings.

  • And during the current earnings season, most companies have proven that analysts’ forecasts for earnings continue to be too conservative.

Flashback: These unusually conservative expectations for earnings can be tracked back to early 2020 when neither companies nor analysts understood where things were headed. They just knew things were bad.

  • “During the worst part of the pandemic, analysts were basically flying blind,” Liz Ann Sonders, chief investment strategist at Charles Schwab, tells Axios. “What they ended up doing in that environment was they erred on the side of just slashing estimates.”
  • Companies went on to report better-than-expected earnings quarter after quarter. But analysts were anchored in their conservative outlooks.
  • “In turn, the forward P/E over the last year has been sort of artificially high because analysts have had the estimates for the forward quarters somewhat artificially low,” Sonders explains.

Yes, but: Even at a forward P/E of 21.2, this multiple is above average. According to FactSet, the 10-year average multiple is closer to 16.2

But, but, but: Sonders cautions against putting too much weight into long-term historical averages as the macroeconomic environment has evolved greatly.

  • For one, she notes that historically low interest rates are supportive of higher valuations, a sentiment shared by the likes of billionaire Warren Buffett and even Fed Chair Jerome Powell.
  • Also, a growing share of the S&P consists of tech companies, which warrant relative high valuations thanks to their more favorable growth prospects.

The bottom line: An elevated P/E ratio alone is not a reason think stocks are doomed to fall.

  • “Sometimes high multiples are not ‘what you see is what you get,’” Anastasia Amoroso, chief investment strategist at iCapital Network, tells Axios.
  • “It is typical in a quickly recovering economy to see earnings get revised higher and beat consensus, leading to same or even lower multiples. When accounting for these higher earnings, the ‘true’ multiples may not be as expensive as they seem.”

Go deeper

Kate Marino, author of Markets
Nov 10, 2021 - Economy & Business

Tesla shares drop 12% amid possible Elon Musk stock sale

Data: FactSet; Chart: Axios Visuals

Tesla shares fell 12% Tuesday — nearly putting its market cap back under $1 trillion less than two weeks after it entered the exclusive trillion-dollar club.

  • The company shed over $150 billion in value since its peak last Thursday, according to FactSet.
Updated 59 mins ago - Economy & Business

Hybrid work now dominates the knowledge economy

llustration: Eniola Odetunde/Axios

For the first time since the start of the pandemic, most knowledge workers are in hybrid work arrangements, partly remote and partly in-office, a new survey finds.

By the numbers: 58% said they now work this way, in a survey of around 10,000 knowledge workers from the U.S., Europe, Australia and Japan, conducted last November by Future Forum, a research group backed by Slack.

Rents hit all-time high

Data: Zumper; Chart: Axios Visuals

The national median price of a one-bedroom rental apartment in January was up 12% year-over-year, to $1,374 — an all-time high, per Zumper, an online apartment rental site.

Why it matters: Inflation is taking a bigger bite out of people's paychecks these days not only in food and gasoline, but also in housing costs.

You’ve caught up. Now what?

Sign up for Mike Allen’s daily Axios AM and PM newsletters to get smarter, faster on the news that matters.

Please enter a valid email.

Please enter a valid email.

Subscription failed
Thank you for subscribing!