1. (15 pts) Using the P/E ratio plot below, explain what that means in your own language. a. Explain trailing (historical) P/E and leading (forward) P/E, and how they can impact the results of your analysis when analyzing different types of companies? b. How the analysis below is conducted (assume Ordinary Least Square regression)? c. What does that imply about the future? Forward P/E and subsequent 1-yr. returns S&P 500 Total Return Index 60% Forward P/E and subsequent 5-yr. annualized returns S&P 500 Total Return Index 60% 40% 40% 20% 20% 0% 0% -20% -20% -40% -40% Sep. 30, 2021: 20.3x Sep. 30, 2021: 20.3x R = 4% R?= 41% -60% 8.0x 11.0x 14.0x 17.0x -60% 8.0x 20.0x 23.0x 11.0x 14 Ox 17.0x 20.0x 23.0x & Poor's Returns are 12-month and 60-month annualized total returns, measured monthly, beginning 8/31/96. R represents the percent of total variation in total returns that can be explained by forward price-to-eamings ratios. Price-to-earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since July 1996, and J.P. Morgan Asset Management for September 30, 2021. Guide to the Markets - U.S. Data are as of September 30, 2021. J.P.Morgan Asset Management 1. (15 pts) Using the P/E ratio plot below, explain what that means in your own language. a. Explain trailing (historical) P/E and leading (forward) P/E, and how they can impact the results of your analysis when analyzing different types of companies? b. How the analysis below is conducted (assume Ordinary Least Square regression)? c. What does that imply about the future? Forward P/E and subsequent 1-yr. returns S&P 500 Total Return Index 60% Forward P/E and subsequent 5-yr. annualized returns S&P 500 Total Return Index 60% 40% 40% 20% 20% 0% 0% -20% -20% -40% -40% Sep. 30, 2021: 20.3x Sep. 30, 2021: 20.3x R = 4% R?= 41% -60% 8.0x 11.0x 14.0x 17.0x -60% 8.0x 20.0x 23.0x 11.0x 14 Ox 17.0x 20.0x 23.0x & Poor's Returns are 12-month and 60-month annualized total returns, measured monthly, beginning 8/31/96. R represents the percent of total variation in total returns that can be explained by forward price-to-eamings ratios. Price-to-earnings is price divided by consensus analyst estimates of earnings per share for the next 12 months as provided by IBES since July 1996, and J.P. Morgan Asset Management for September 30, 2021. Guide to the Markets - U.S. Data are as of September 30, 2021. J.P.Morgan Asset Management
