6 S&P 500 Stocks with the Highest P/E Ratios
The price-to-earnings ratio is one of the most closely watched valuation metrics out there. But once it climbs into the high tens, sometimes even the low hundreds, it ceases to be a simple gauge of expensiveness and starts signaling that something is going on. Six companies in the S&P 500 currently trade at triple-digit earnings multiples. Yet the reasons differ fundamentally for each. For one it's a growth premium, for another it's one-off write-downs, and for a third it's a cyclical trough in profitability. So where is a high P/E a genuine warning, and where is it just an accounting illusion?
Key points
A triple-digit P/E by itself says nothing about whether a stock is expensive. The key lies in the difference between the trailing and forward multiples.
In three of the selected names, the high P/E stems from accounting effects or a cyclical trough, not from a growth premium.
The gap between a P/E of 480 and a forward P/E of 15 at one of the companies shows how easily a screener can lead an investor astray.
At two tech companies, the multiple remains extreme even after factoring in the outlook, which means there is genuine valuation risk.
Free cash flow is often a far more important metric for these firms than accounting earnings.
The P/E ratio – the price of a share divided by earnings per share – is the world's most widespread valuation metric. Its advantage is simplicity; its biggest weakness is that very same trait. The metric uses accounting earnings for the last twelve months, which can be distorted by write-offs, restructuring costs, acquisition amortization, or simply the fact that the company is at the bottom of the business cycle.
The S&P 500 index as a whole trades above twenty times earnings today. That's above the long-term average but still in a range the market considers justifiable. The six companies we dissect today, however, are an order of magnitude higher. The cheapest sports a P/E over 280, the most expensive closes in on 600. An investor taking such numbers at face value would assume the investment would only pay back at current earnings in a few centuries.
That's exactly why each of these cases must be examined separately. In three instances, earnings were suppressed last year by extraordinary items or a cyclical slump. Their forward P/E – the multiple of expected earnings for the next twelve months – collapses to ordinary values between fifteen and twenty-five. In the remaining three cases, the multiple stays high even after adjusting for the outlook, meaning the market is genuinely paying a premium for future growth.
One more methodological note. The ranking by P/E changes practically daily. The selection below therefore isn't a fixed league table but a sample of stocks from the upper end of the index's valuation spectrum.
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