Stock prices rose last fortnight. The S&P 500 index of big American companies climbed 0.7% to 4,739. But corporate earnings dropped a little. Earnings per share for the index fell 60 cents to $211.60. That’s left the market a bit overvalued. At the current price, it offers an 8.8% expected return, still some of the highest returns on offer in over a decade.
Valuabl’s discounted cash flow model suggests the S&P 500 is worth $4,448 per share. The companies in the index earned $1.8trn in the past year. They paid out $544bn in dividends, bought back $806bn worth of shares, and issued $72bn of equity. Net payouts to shareholders were $1.3trn or $152.55 per share. This model used analysts’ consensus estimates for each company in the index to forecast future earnings per share. It also used a stable payout ratio based on the index’s average return on equity. According to this model, the market is 7% overvalued.