Summary: A look into the quality of the AAII data and the need for some recalculation.
The price to earnings ratio (P/E or PE) is a popular characteristic for measuring the value of a stock. It measures the number of dollars required to buy $1 worth of earnings. Unfortuneately, earnings can be zero which causes the ratio to be undefined and negative earnings cause the ratio to lose meaning. There is a simple adjustment which is to calculate the E/P also know as earnings yield as a stock price does not reach zero.
We will pick the first period in our data which is 20030103. We filter our universe of 8558 companies to those with prices >=$5 and a market cap >=$250MM which reduces to a sample of 2696. The first thing we note is that there are a lot of missing (NA) P/E values. There are 555 (20.6%) missing values. By calculating E/P. The percent of missing values drops to 2.1%.
A closer examination reveals a puzzle that suggests the data is not perfectly clean. I wanted to check that our calculation of E/P was consistent with the P/E supplied by AAII. Any stock with a P/E should have a P and an E. However, not all do. It appears that all the companies with P/E but missing earnings are ADRs. I would guess that either AAII uses a different E for the calculation or is supplied a PE from a different source.
It appears that calculating E/P is better than using the supplied P/E because we will get more information. In addition, for those companies where our E is missing, but we have P/E we can use 1/(P/E) to find E/P. This means we need to go back an calculate a lot of variables.
## Company Ticker PE EP EPS Price
## 36 AEGON N.V. (ADR) AEG 28.3 NA NA 13.580
## 82 Amcor Limited (ADS) AMCR 7.8 NA NA 19.850
## 213 Banco Itau S.A. (ADR) ITU 11.2 NA NA 26.130
## 239 BBVA Banco BHIF (ADR) BB 22.6 NA NA 13.350
## 296 Brilliance China Automoti CBA 6.7 NA NA 20.200
## 337 CSR Limited (ADR) CSRLY 11.0 NA NA 14.350
## 384 Cemex S.A. de C.V. (ADR) CX 6.6 NA NA 22.260
## 415 China Southern Airlines L ZNH 18.4 NA NA 14.200
## 428 Ciba Specialty Chemicals CSB 8.8 NA NA 36.000
## 455 Coca-Cola FEMSA, S.A. (AD KOF 12.1 NA NA 18.020
## 482 Companhia de Bebidas Amer ABV 22.4 NA NA 15.690
## 483 Compania Anonima Nacional VNT 29.1 NA NA 12.500
## 527 Cristalerias de Chile S.A CGW 22.5 NA NA 18.920
## 560 Desc, S.A. de C.V. (ADR) DES 31.4 NA NA 6.900
## 638 Embraer-Empresa Brasileir ERJ 7.8 NA NA 16.050
## 818 Gerdau S.A. (ADR) GGB 7.1 NA NA 9.850
## 851 Grupo Televisa, S.A. (ADR TV 33.9 NA NA 29.800
## 854 Grupo Aeroportuario Del S ASR 12.8 NA NA 12.200
## 974 Industrias Bachoco SA IBA 3.6 NA NA 8.650
## 1086 Konami Corporation (ADR) KNM 30.5 NA NA 22.850
## 1087 Kookmin Bank (ADR) KB 10.6 NA NA 36.060
## 1246 Millea Holdings, Inc. (AD MLEA 18.0 NA NA 36.560
## 1543 Randgold Resources Ltd.(A GOLD 30.5 NA NA 31.771
## 1570 Repsol YPF, S.A. (ADR) REP 15.8 NA NA 13.310
## 1644 Sanofi-Synthelabo (ADR) SNY 17.5 NA NA 29.900
## 1647 Sanyo Electric Co., Ltd. SANYY 223.0 NA NA 13.380
## 1765 Stet Hellas Telecomm. S.A STHLY 13.9 NA NA 6.970
## 1821 Tate & Lyle PLC (ADR) TATYY 12.6 NA NA 20.000
## 1839 TeliaSonera AB (ADR) TLSN 22.3 NA NA 19.400
## 2009 Wal-Mart de Mexico S.A. ( WMMVY 26.2 NA NA 23.600
For good, measure for each company with a supplied P/E we calculate P/E by taking 1/(E/P). The largest difference is 0.05 which is rounding error given that P/E is given to one decimal place.
From AAII’s SIP documentation:
Also called the price multiple, the price-earnings ratio is the most popular price multiple. Calculated by dividing the current stock price by diluted earnings per share from continuing operations for the last four quarters (trailing 12 months). The PE ratio embodies the market’s expectations regarding a company’s growth prospects and risk. High PE ratios generally represent the market’s belief that that the company has strong future growth prospects and that it will achieve this growth, while a low price-earnings ratio represents the market’s low earnings growth expectations for the firm or the high risk or uncertainty of the firm actually achieving growth. The usefulness of this ratio is limited to those firms that have positive earnings. In addition, earnings are more subject to management assumptions and manipulation than other income statement items such as sales. Price to Earnings = Price / EPS Diluted Continuing 12m
No comments:
Post a Comment