Where Are Valuations At Heading Into 2016? by Eric Bush, CFA, Gavekal Capital Blog
The average price to cash flow value for a company in the developed world currently sits at 13.67x while the median value is lower at 10.18x. Europe has some of the most expensive and cheapest valuations out there based on price to cash flow. Denmark and Ireland are the only countries to have an average P/CF ratio above 20. On the other end of the valuation spectrum, Spain, Austria and Portugal are the only countries to have an average P/CF of less than 10x. Austria has the second lowest average price to cash flow and the lowest median price to cash flow valuation of any developed world country. Austria’s median price to cash flow value of just 5.37x is nearly 50% less than the median valuation in the developed world. For the United States, both average and median price to cash flow valuations sit just above the average and median levels for the developed world. The US has the 7th most expensive average price to cash flow ratio and the 8th most expensive median price to cash flow ratio. Japan has been one of the better performers in 2015 as the average stock there rose by 15% in USD. The good news for investors is that Japanese valuations remain relatively tame as the median price to cash flow value for Japanese equities is just 8.59x cash flow.
The average price to earnings ratio in the world is a lofty 27.11x. The median price to earnings ratio is lower but still remains high as it sits at 21.11x. Singapore stocks look particularly cheap based on this measure as they have the lowest average and median price to earnings ratios by a fairly wide margin. The United States also looks relatively cheap based on price to earnings as the average price to earnings ratio is at 26.32x and the median price to earnings ratio is at 20.73. Both values for the US are below the overall average and median values for the developed world. Of the four valuation measures we cover, this is the only case where the US falls below the average.
There is a fairly large dispersion of values when investors look at average and median price to book values across the developed world. Denmark has an average price to book value that is over twice what the developed world average value is. On the other end, Austria has a median price to book value below 1x. This is remarkable in and of itself and even more so when one considers that the median price to book value in the developed world is just over 2x. The United States looks particularly expensive based on this measure. The US has the second highest average price to book value at 5.18x and the fourth highest median price to book value at 2.8x. Japanese equities look like a steal based on price to book value. Japan has the second lowest average price to book value at just 2.04x and the fourth lowest median price to book value at 1.41x.
The average price to sales ratio in the developed world is currently 3.05x and the median price to sales ratio is 1.93x. The US again looks a bit expensive on this measure as the US has the fourth highest average price to sales ratio at 4.26x and the fifth highest median price to sales ratio at 2.24x. Singapore, which looks down right cheap on price to earnings basis, looks expensive based on price to sales. Singapore has the highest median price to sales ratio at 3.15x.
Check back tomorrow for Emerging Markets country valuation analysis.