Watch Michael Paige, one of our Analysts here in Simply Wall St, demonstrating the basics on how to use the market and industry page on the platform.
How to: Read the "Market Valuation and Performance" chart
What does the purple line mean?
How to: Read the 'Sector and Industry Trends' chart
How do I read the Price Performance tab for the Sector Trends Chart?
What is the Sector/Industry Trends Valuation tab showing me?
How do I read the Valuation tab for the Sector Trends Chart?
What does the vertical market P/E line mean?
What does Earnings Growth mean?
How did you calculate the data for the Market Valuation and Performance Chart?
How did you calculate the data for the Sector and Industry Trends chart?
How are the companies ordered in the top gainers and losers table?
How do I read the "Market Valuation and Performance" chart?
What is the chart showing me?
The market P/E, or price-to-earnings ratio, is a useful tool for gaining a general sense of investor sentiment for a specific {market/industry}, which helps determine perceived value for that {market/industry}. In other words, the market P/E ratio is a helpful approximation of market valuation.
- It tells us how much stocks cost on average in a given market, represented by the “P” in the numerator, in relation to the average profits or earnings, the “E” in the denominator, they bring in. Essentially, the ratio compares overall cost with overall profits.
- E.g. if the market is priced at $100 and the average earnings are $10, then the market P/E ratio is 10x meaning investors trading in that market perceive the market to be valued at 10 times its earnings.
- A key takeaway when any given market has a high P/E ratio is that investors are essentially paying up for future growth.
What does the purple line mean?
- The purple line is the trendline of monthly P/E ratios of the selected market or industry over a duration of 3 or 10 years
- The monthly P/E ratios are calculated using the median PE of all profitable companies over a monthly period. We use median of profitable companies because P/E is meaningless for unprofitable companies
- The red and green shaded areas represent whether the {US market} has been trading above or below its average historical P/E at any given point. This serves as a benchmark against which current valuation can be compared
- A higher than average P/E indicates increased investor optimism for the selected market or industry as a whole
What do the other lines mean?
The three lines on the bottom half of the chart represent total market capitalization, total earnings and total revenue. It is calculated based on the aggregate of all companies within the selected market or industry.
- Ideally, market capitalization (total monetary value of the entire market) growth should be driven by revenue and earnings growth.
- High market P/E with little to no earning growth might mean that investors expect current earnings trajectory to improve
- The percentage point next to each line highlights the percentage change between the starting point (either 3 years or 10 years ago), to the current point (shown where the date is next to the P/E ratio)
How do I read the 'Sector and Industry Trends' chart?
How do I read the Price Performance tab for the Sector Trends Chart?
This bar chart shows the change in price performance for the major sectors within a market. The bar is green when the selected period is positive, and red when it has been negative and is ordered from the biggest positive change to negative change. The percentage on the left hand side of the bar indicates the percentage change in that period.
Clicking into the industry allows you to view the sub-industries within the primary industry and drill down further into what is driving the changes for the select period.
What is the Sector/Industry Trends Valuation tab showing me?
The industry/sector P/E, or price-to-earnings ratio, is a useful tool for gaining a general sense of investor sentiment for a specific industry, which helps determine perceived value for that industry. In other words, the industry P/E ratio is a helpful approximation of industry valuation.
- It tells us how much stocks cost on average in a given industry (e.g. Technology), represented by the “P” in the numerator, in relation to the average profits or earnings, the “E” in the denominator, they bring in. Essentially, the ratio compares overall cost with overall profits.
- E.g. If the industry is priced at $100 and the average earnings are $10, then the industry P/E ratio is 10x meaning investors trading in that industry perceive that industry to be valued at 10 times its earnings.
- A key takeaway when any given industry has a high P/E ratio is that investors are essentially paying up for future growth.
How do I read the Valuation tab for the Sector Trends Chart?
- The number on the left side of the blue bar is the P/E ratio of that sector.
- A high industry P/E ratio usually indicates high growth expectations for that industry
- P/E ratios vary across industries due to differences in future growth expectations
- When comparing P/E between industries investors need to account for differences in growth expectations and risks.
- An industry P/E is a useful benchmark against which individual stock valuations can be compared
What does the vertical market P/E line mean?
The vertical line represents the selected market's current P/E ratio.
The further the blue bar extends beyond the vertical line, the more robust growth expectations that specific sector has in the investor community in relation to the market. It should be noted that P/E ratios vary across industries due to differences in future growth expectations.
What does Earnings Growth mean?
Earnings growth measures the rate at which each sector is expected to grow its earnings annually.
Higher earnings growth should usually be accompanied by a high industry P/E reflecting the high price investors are willing to pay for that future growth
FAQS
How did you calculate the data for the Market Valuation and Performance Chart?
Our data source is from S&P Global. All companies, excluding those with negative revenue, are aggregated to calculate the total market cap, total revenue and total earnings for each market or industry.
The PE ratio is calculated by taking the median PE from all profitable companies in that market or industry. This is because negative PE is meaningless for valuation purposes, so we have excluded companies with negative earnings (and therefore negative PE).
How did you calculate the data for the Sector and Industry Trends chart?
How are the companies ordered in the top gainers and losers table?
These companies are ordered based on the biggest market cap movement by dollar amount. For example, if company A’s market cap is $100M and their performance in the last 7 days goes up by 10%, their market cap movement towards the whole market is only by $10M. Compare this with a company B with a market cap of $100B, even a 1% move in that 7 day is a $1 Billion impact and gain to the overall market cap. Therefore, the top gainers and losers section is based on the market cap movement.
Why can’t I click into some of the industries? Why can’t I find some industries for certain markets in the dropdown?
For some markets, there are very limited companies in an industry, which makes the charts and tables meaningless as there is only a handful of companies. Therefore we haven’t created pages for these industries.
If one of the industries in the sector trends chart is greyed out, this indicates that there is no dedicated industry page, therefore you are unable to click into it like with other industries.