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19 hours ago
- Business
- Yahoo
Monitoring The Cape Ratio: Are Stocks Overvalued or Will the Bull Run Continue?
Amid a historic rebound, the S&P 500 has hit another all-time high after flirting with correction territory just three months ago in March. With the S&P 500 dropping more than 10% in March from its previous high of 6,144 in February, the benchmark has now rebounded and hit a new peak of over 6,180 on Friday. Such a fast recoup in the broader market is unprecedented and can sometimes take years. That said, it's certainly a worthy topic of whether stocks are overvalued or if there is indeed a clear path for a Bull market to continue. To do so, let's take a look at the Cape ratio, also known as the Shiller P/E ratio, and review the bullish sentiment that's lifting markets. Notably, the Cape ratio is used to calculate the price of the stock market or individual stocks relative to their average inflation-adjusted earnings over the last 10 years. Keeping this in mind, the Cape ratio smooths out fluctuations caused by economic cycles, providing a clearer view of whether stocks are overvalued or undervalued based on their historical average. Preluding the market correction earlier in the year, many analysts, including famed billionaire Jeffrey Gundlach, had called for a market recalibration based on the Cape ratio's reading of 38X earnings on the benchmark S&P 500, the second-highest level ever. This Clinically Adjusted Price-to-Earnings Ratio (CAPE) has roots that date back to 1934, when David Dodd and Warren Buffett's mentor Benjamin Graham proposed smoothing out earnings over multiple years in their investment book 'Security Analysis', which provided a foundational idea behind CAPE. Retroactively calculating historical earnings data for the U.S. stock market back to 1881, the Cape ratio was formally introduced by economists Robert Shiller and John Y. Campbell in 1988. Furthermore, the Cape ratio gained notoriety in the late 1990s and early 2000s, thanks to Shiller's warning of the dot-com bubble. Following the broader market's most recent and historical rebound, the Cape ratio on the S&P 500 is currently at 36X, which is once again well above its historical average of around 16-17X. Image Source: YCHARTS Despite the Cape ratio indicating stocks are overvalued, a clearer path to global economic growth has been established with the U.S. officially reaching a framework trade deal agreement with China on Friday. President Trump's 10% baseline tariff on most countries is set to expire on July 8, but has eased concerns that rattled the stock market, providing a 90-day pause on higher imposed country-specific tariffs. While this deadline is just a few weeks away, Treasury Secretary Scott Bessent has advised that most trade deals should be done by Labor Day (Monday, September 1st). Allowing more time for negotiations, the U.S. has come to a trade agreement with the U.K. as well and is in talks with other major trading partners, including the E.U., India, and Japan. Optimistically, May's jobs report and inflation data added fuel to the market rebound earlier in the month after coming in better than economists' expectations. Meanwhile, reports of an Israel-Iran truce were able to sustain this optimism, although it's noteworthy that President Trump has just gone on the record and said he is terminating trade talks with Canada at the time of this writing. While overly bullish market sentiment can sometimes be questioned as a conundrum, investors should know that this usually preludes to higher corporate earnings, the general principle that manifests in a higher stock market. Over the last decade, the earnings from the companies in the S&P 500 have grown by over 9% annually, with the index up a bullish +200% during this period. Image Source: Zacks Investment Research Considering the stock market needs higher EPS figures to ease the Cape ratio's overhyped reading, it's noteworthy that Zacks director Sheraz Mian has pointed out that S&P 500 earnings for the second quarter are currently expected to be up +4.9% from the same period last year on +3.9% higher revenues. However, Mian also points out that while negative revisions to Q2 estimates have stabilized in recent weeks, tariff uncertainty has caused estimates for the period to be under significant pressure relative to other recent periods. Inherently, for the bull run to continue, a relatively strong Q2 earnings season and better-than-expected corporate guidance will be crucial, with the Cape ratio at a very high 36X. This may certainly be the case with the S&P 500 already hitting a new all-time peak after rebounding +10% in just three months. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report This article originally published on Zacks Investment Research ( Zacks Investment Research
Yahoo
4 days ago
- Business
- Yahoo
Investors in Landmark Bancorp (NASDAQ:LARK) have seen decent returns of 36% over the past year
It might be of some concern to shareholders to see the Landmark Bancorp, Inc. (NASDAQ:LARK) share price down 18% in the last month. While that might be a setback, it doesn't negate the nice returns received over the last twelve months. To wit, it had solidly beat the market, up 31%. So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress. This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality. To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement. Landmark Bancorp was able to grow EPS by 28% in the last twelve months. This EPS growth is reasonably close to the 31% increase in the share price. That suggests that the market sentiment around the company hasn't changed much over that time. We don't think its coincidental that the share price is growing at a similar rate to the earnings per share. The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers). Dive deeper into Landmark Bancorp's key metrics by checking this interactive graph of Landmark Bancorp's earnings, revenue and cash flow. It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, Landmark Bancorp's TSR for the last 1 year was 36%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments! It's nice to see that Landmark Bancorp shareholders have received a total shareholder return of 36% over the last year. And that does include the dividend. That's better than the annualised return of 8% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Landmark Bancorp has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges. — Investing narratives with Fair Values A case for TSXV:USA to reach USD $5.00 - $9.00 (CAD $7.30–$12.29) by 2029. By Agricola – Community Contributor Fair Value Estimated: CA$12.29 · 0.9% Overvalued DLocal's Future Growth Fueled by 35% Revenue and Profit Margin Boosts By WynnLevi – Community Contributor Fair Value Estimated: $195.39 · 0.9% Overvalued Historically Cheap, but the Margin of Safety Is Still Thin By Mandelman – Community Contributor Fair Value Estimated: SEK232.58 · 0.2% Overvalued View more featured narratives — Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
6 days ago
- Business
- Yahoo
Those who invested in RCE Capital Berhad (KLSE:RCECAP) five years ago are up 251%
It hasn't been the best quarter for RCE Capital Berhad (KLSE:RCECAP) shareholders, since the share price has fallen 11% in that time. But that scarcely detracts from the really solid long term returns generated by the company over five years. In fact, the share price is 140% higher today. We think it's more important to dwell on the long term returns than the short term returns. The more important question is whether the stock is too cheap or too expensive today. While the long term returns are impressive, we do have some sympathy for those who bought more recently, given the 15% drop, in the last year. With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time. RCE Capital Berhad's earnings per share are down 3.0% per year, despite strong share price performance over five years. So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements. In fact, the dividend has increased over time, which is a positive. Maybe dividend investors have helped support the share price. The revenue growth of about 3.5% per year might also encourage buyers. You can see below how earnings and revenue have changed over time (discover the exact values by clicking on the image). Take a more thorough look at RCE Capital Berhad's financial health with this free report on its balance sheet. When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for RCE Capital Berhad the TSR over the last 5 years was 251%, which is better than the share price return mentioned above. This is largely a result of its dividend payments! We regret to report that RCE Capital Berhad shareholders are down 11% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 7.2%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 29% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 2 warning signs for RCE Capital Berhad that you should be aware of before investing here. Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Malaysian exchanges. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
6 days ago
- Business
- Yahoo
Investing in Dynatrace (NYSE:DT) five years ago would have delivered you a 31% gain
The main point of investing for the long term is to make money. But more than that, you probably want to see it rise more than the market average. But Dynatrace, Inc. (NYSE:DT) has fallen short of that second goal, with a share price rise of 31% over five years, which is below the market return. However, more recent buyers should be happy with the increase of 23% over the last year. With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies. Trump has pledged to "unleash" American oil and gas and these 15 US stocks have developments that are poised to benefit. To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement. During the five years of share price growth, Dynatrace moved from a loss to profitability. That's generally thought to be a genuine positive, so investors may expect to see an increasing share price. Given that the company made a profit three years ago, but not five years ago, it is worth looking at the share price returns over the last three years, too. We can see that the Dynatrace share price is up 23% in the last three years. In the same period, EPS is up 106% per year. This EPS growth is higher than the 7% average annual increase in the share price over the same three years. Therefore, it seems the market has moderated its expectations for growth, somewhat. The image below shows how EPS has tracked over time (if you click on the image you can see greater detail). It is of course excellent to see how Dynatrace has grown profits over the years, but the future is more important for shareholders. If you are thinking of buying or selling Dynatrace stock, you should check out this FREE detailed report on its balance sheet. It's good to see that Dynatrace has rewarded shareholders with a total shareholder return of 23% in the last twelve months. That's better than the annualised return of 6% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 1 warning sign for Dynatrace that you should be aware of. For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
6 days ago
- Business
- Yahoo
Those who invested in Automatic Data Processing (NASDAQ:ADP) five years ago are up 135%
The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But on the bright side, you can make far more than 100% on a really good stock. For example, the Automatic Data Processing, Inc. (NASDAQ:ADP) share price has soared 112% in the last half decade. Most would be very happy with that. So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress. We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free. To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement. During five years of share price growth, Automatic Data Processing achieved compound earnings per share (EPS) growth of 11% per year. This EPS growth is lower than the 16% average annual increase in the share price. This suggests that market participants hold the company in higher regard, these days. And that's hardly shocking given the track record of growth. The graphic below depicts how EPS has changed over time (unveil the exact values by clicking on the image). Dive deeper into Automatic Data Processing's key metrics by checking this interactive graph of Automatic Data Processing's earnings, revenue and cash flow. It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Automatic Data Processing, it has a TSR of 135% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments! It's good to see that Automatic Data Processing has rewarded shareholders with a total shareholder return of 26% in the last twelve months. That's including the dividend. Since the one-year TSR is better than the five-year TSR (the latter coming in at 19% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Before spending more time on Automatic Data Processing it might be wise to click here to see if insiders have been buying or selling shares. For those who like to find winning investments this free list of undervalued companies with recent insider purchasing, could be just the ticket. Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges. Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Sign in to access your portfolio
