The (PEBV) ratio for NC 2000 increased from 1.2 as of 6/30/22 to 1.4 as of 8/12/22. NC 2000 consists of the 2000 largest US companies by market capitalization in my company coverage. Components are updated on a quarter-end basis. I exclude companies that report under International Financial Reporting Standards (IFRS) and non-US companies for dispute resolution (ADR).

This report is a shortened version of the All Sectors and Sectors Index: Price to Economic Book Value increased during 8/12/22, and it is one of my quarterly reports on market and core sector trends. I calculate these metrics based on the S&P Global (SPGI) methodology, which collects the individual NC 2000 component values โ€‹โ€‹of market value and economic book value before using them to calculate the metrics. I call this the “clustering” methodology.

Based on the most recent available audited financial statements, which is 2Q22 10-Q in most cases. Price data as of 8/12/22. See appendices for more information calculation methodologies.

2000 NC excess PEBV increased from 30/6/22 to 8/12/22

The post PEBV ratio compares the projected future earnings of NC 2000 (as reflected in its price) to its economic book value as of 12/8/22. NC 2000’s PEBV ratio of 1.4 indicates that NC 2000’s (NOPAT) earnings will increase 40% from the subsequent twelve-month period (TTM) to second-quarter levels of 22.

Key details in locating NC 2000 segments

Three segments in NC 2000, Communications Services, Energy, and Basic Materials are trading at less than their economic book value. The financial sector trades at its economic book value. Figure 2 shows that the telecom services sector has the lowest tiered PEBV ratio, and the real estate sector has the highest consecutive PEBV ratio among the eleven capital index segments based on prices as of 12/8/22 and financial data from 2Q22 10-Qs.

A lagging PEBV ratio of 0.6 means that investors expect telecom services sector earnings to fall 40% from TTM through Q222 levels. On the other hand, investors expect real estate and consumer cycles (lagging behind PEBV ratios of 3.8 and 2.1) to Improving earnings more than any other sectors in the Cap.

Below, I highlight the telecom services sector, which recorded the lowest percentage of PEBV during 8/12/22.

Sector analysis sample: Telecom services: excess PEBV = 0.6

Figure 1 shows that the lag PEBV ratio of the telecom services sector increased from 0.5 as of 30/6/22 to 0.6 as of 8/12/22. The market value of the telecom services sector decreased from 658 billion US dollars as of 30/6/22 to 628 billion US dollars as of 22/8/2012, while the economic book value decreased from 1.2 trillion US dollars as of 30/6/22 to 1.1 Trillion USD as of 8/12/22.

Figure 1: Post PEBV Ratio for Communication Services: December 1998 - 8/12/22

The measurement period August 12, 2022 uses price data as of that date and includes financial data from 2Q22 10-Qs, as this is the earliest date on which all 2Q22 10-Qs for NC 2000 components were available.

Figure 2 compares trends in market value and economic book value of the telecom services sector since 1998. It summarizes the component values โ€‹โ€‹of each 2000/NC sector for market value and economic book value. I call this approach the "pooling" methodology, and it matches the S&P Global (SPGI) methodology for these accounts.

Figure 2: Market value of telecom services and economic book value: December 1998 - 8/12/22

The measurement period August 12, 2022 uses price data as of that date and includes financial data from 2Q22 10-Qs, as this is the earliest date on which all 2Q22 10-Qs for NC 2000 components were available.

The aggregation methodology provides a first-hand look at the entire NC 2000/sector, regardless of company size or index weighting, and matches how S&P Global (SPGI) calculates the S&P 500 metrics.

For an additional perspective, I compare the aggregation method for PEBV ratio retardation with two other market-weighted methodologies. Each method has its advantages and disadvantages, which are detailed in the appendix.

Figure 3 compares these three methods for calculating the post PEBV ratios for the telecom services sector.

Figure 3: PEBV Post-Telecommunication Services Ratio Methodologies Comparative: December 1998 - 8/12/22

The measurement period August 12, 2022 uses price data as of that date and includes financial data from 2Q22 10-Qs, as this is the earliest date on which all 2Q22 10-Qs for NC 2000 components were available.

Disclosure: David Trainer, Kyle Guske II, Matt Shuler, and Brian Pellegrini receive no compensation for writing for any particular stock, style, or topic.

Appendix: Analysis of excess PEBV percentage using different weighting methodologies

I derive the above metrics by adding the individual component values โ€‹โ€‹of each 2000 NC segment of market value and economic book value to calculate the percentage of excess PEBV. I call this approach the "clustering" methodology.

The aggregation methodology provides a first-hand look at the entire NC 2000/sector, regardless of company size or index weighting, and matches how S&P Global (SPGI) calculates the S&P 500 metrics.

For an additional perspective, I compare the aggregation method for PEBV ratio retardation with two other market-weighted methodologies. These market-weighted methodologies add more value to ratios that do not include market values, for example ROIC and its drivers, but I include them here, however, for comparison:

Market Weighted Metrics - Calculated by weighting the market value of the individual firms' ex post PEBV ratio relative to their sector or the total NC 2000 in each period. details:

  1. The weight of the company is equal to the market value of the company divided by the market value of the national company 2000 or its sector
  2. Multiply each company's delayed PEBV percentage by its weight
  3. The post 2000/sector PEBV ratio is equal to the sum of the weighted excess PEBV ratios for all firms in the NC 2000/sector

market weighted engines Calculated by weighting the market value of the market value and the economic book value of individual companies in each sector in each period. details:

  1. The weight of the company is equal to the market value of the company divided by the market value of the national company 2000 or its sector
  2. Multiply the market value and economic book value of each company by its weight
  3. Combine the weighted market value and weighted economic book value of each company in NC 2000/each segment to determine NC 2000 or sector weighted market value and weighted economic book value
  4. NC 2000 / Segment excess PEBV is equal to NC 2000 weighted market value / segment divided by segment economic book value NC 2000 /

Each methodology has its advantages and disadvantages, as listed below:

assembly method

Positives:

  • A first-hand look at NC 2000/the entire sector, regardless of company size or weight.
  • It matches how S&P Global calculates the S&P 500 metrics.

Negatives:

  • Vulnerable to the influence of companies entering/exiting the group of companies, which may unnecessarily affect the overall values. Also prone to outliers in any one period.

Market Weighted Metrics method

Positives:

  • Calculates a company's market value for NC 2000/segment and measures its metrics accordingly.

Negatives:

  • Outward weakness results from a single company that disproportionately affects the overall PEBV ratio.

Market weighted motors method

Positives:

  • Calculates the company's market value for NC 2000/segment and weighs its size and economic book value accordingly.
  • It mitigates the disproportionate impact of one company's external results on overall results.

Negatives:

  • More susceptible to significant fluctuations in market value or economic book value (which can be affected by changes in WACC) over the period, particularly from highly weighted companies in the NC 2000/segment.