S&P 500 Sales Per Share Falling

Even though earnings have been beating estimates, sales per share for the market is still falling from a year ago.

Expectations coming into earning season were very low.  Most of the upside is coming from cost cutting, not from revenue surprises.  This is why the market is acting manic.  At some point, however, sales for the market must begin rising as there is only so much cost cutting corporations can do.

The most recent sales per share for the S&P 500 from Bloomberg is $955.  Applying a 7% net profit margin to that number gets us normalized earnings of just under $67.  The market is trading at 14.3x "normalized" earnings.  The historical long-term profit margin for the market has averaged 6%.  If we use this as our normalized margin, earnings would be just over $57, and the market would be trading at 16.6x.  Neither is cheap given the current environment.

Comments

[psychodave]

Good numbers ... really good numbers.

If you're going to do us the discourtesy of a simplistic absolute, viz. the "must" in your "sales for the market must begin rising", the least you could do (for those of us more than a bit slow on the uptake) is provide the contingency.

E.g. "if earnings have any hope of justifying higher stock market price levels".

BTW, I think of you purely as an investor. As consistently as Mauldin is always maudlin (WARNING! dyslexic hazard) you have always provided, inter alia, fundamentals behind even your most short term capital allocations.

In sharp contrast to the protagonist of the HUDSUCKER PROXY, a seminal work for any would be investor, Toro "looks wise" to this reader.

This is coming from a man cynical enough to take his Mother's admonition to "Never eat at a place called Mom's" as an empty and futile effort at erecting a barrier to entry against the competition.