Saturday, February 14, 2009

Earnings results and stock market valuation.

Its results for the last three months of last year showed 77.4% of companies, which are included in the index based on the S & P 500. So far the results have shown an average annual decrease in profit for the last quarter of 2008 on 37,7%. If we reflect market capitalization it is 18.7% decline in profit. These different results show that the "well" so far the leading companies with large market capitalization. Simply, it could be said that large multinational organizations has gone through the crisis better than a small regional company.

If we look at individual sectors, we find no big surprises. The worst has the financial sector, which showed a decline in profit on an incredible 4 250%. However, sectors in which the crisis began, is forced to write off worthless investment and the writedown losses. Poor results also shows the basic materials sector, where due to prices fall earnings decreased on average by 78%.

At the other side of sectors still with positive growth there are basic consumer goods (eg food) and health care with 14.3% growth in profits or 9.7% (together with the utilities only three sectors with the year of profit growth). Regarding the industry, here the worst performance for banking institutions, together with car manufacturers. In these sectors decreased profit by 133% or about 1 500%.

Many stock titles seemed to be undervalued. However, in last year's stock index fell the S & P 500 of 38.5% and profit-based companies in this index decreased on 37,7% so far. It is therefore possible to say that the declines in U.S. stock markets are in line with the decline in profitability and many companies are reasonably valued.

It should be noted that the indicator P / E is influenced by falling profits of financial institutions, which show huge losses. However, it is impossible that all stock items are properly valued. Certainly on the stock market it can be found a number of undervalued companies that have suffered declines due to negative sentiment.


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