LookingatallthreemeasuresoftheP/Eratio,themeanis
consistentlyhigherthanthemedian,reflecting thefact that
P/Eratioscanbeveryhighpositivenumbersbut cannotbe
lessthanzero.Thisasymmetryinthedistributionsiscaptured
intheskewnessvalues.ThecurrentP/Eratiosarealsohigher
thanthetrailingP/Eratios,which,inturn,arehigherthanthe
forward P/E ratios.
Therewere7,123firmsintheoverallsample,butonly4,179
survivedthepositiveearningscutandhad P/Eratios.With
forwardP/Eratios,welosemorefirmssinceweneedanalyst
estimatesofearningspershareforthenextyear;anyfirmthat
isnotfollowedbyanalystsiseliminatedfromthesample.The
biasthatweaverredtoinChapter7,resultingfromnotbeing
able to compute multiples for some firms, is clearly a
significant problem with P/E ratios.
PEG Ratio
Portfolio managers and analysts sometimes compare P/E
ratiostotheexpectedgrowthratetoidentifyundervaluedand
overvaluedstocks.Asanaturaloutgrowth,thePEGratiois