Horizontal comparison in the same industry

The first step is horizontal comparison, that is, comparison with other industries in the same period. Just like looking at the class ranking in an exam, you know what your grades are in the class at present. Taking Shenwan's 28 first-class industry indexes as the statistical object, there are currently 1 1 industries with TTM over 30 times, among which leisure services, national defense and military industry and computers rank in the top three, with TTM over 50 times, which are 82.02 times, 57.72 times and 50.49 times respectively. (Source: wind, 202 1.05. 14)

At the same time, banking, building decoration and real estate are the three industries with the lowest valuation, with TTM of 7.59 times, 8.25 times and 8.30 times respectively. Obviously, it can be seen that the overall valuation level of cyclical industries is relatively low, while the valuation level of consumer and technology industries is generally high. (Source: wind, 202 1.05. 14)

From the horizontal comparison between industries, we can see which industries are relatively expensive and which industries are relatively cheap. In the overall rising market environment, "who is more expensive and who is cheaper" may not be the focus, but when the market enters a period of shock, "overvaluation" will often become an obstacle for the industry or individual stocks to continue to rise.

Second step

Comparison of historical valuation in the same industry

The second trick is to compare it with yourself vertically. How do you compare with yourself? At this time, it depends on the index of "P/E ratio", which represents the historical level of current P/E ratio. Take the bank as an example. Although the current P/E ratio of 7.59 times is the lowest in the industry, it has been 89.73% in the last decade. In other words, in the last decade, the bank's valuation level is now more expensive than when it was nearly 90%. (Source: wind, 202 1.05. 14)

Looking at high-valued computers, although the price-earnings ratio of 50.49 times ranks third in the whole market, the current price-earnings ratio is 40.3 1% in the last decade, which means that the price of computers now is nearly 40% cheaper than in the past. In this way, the valuation level of the computer industry is actually not high compared with itself. (Source: wind, 202 1.05. 14)

The significance of comparing with yourself is to let investors know where the current industry and company valuations are. For example, at the high and low points in history, it needs more motivation to continue to rise, such as rapid economic recovery or some positive changes in its own industry.

Third step

Combination and comparison of different evaluation indexes

After the horizontal and vertical comparison of the above two steps, I probably judged the approximate valuation of my selected plate. However, in order to measure the industry sector more accurately, in addition to the price-earnings ratio, the third step should be introduced, which will be more accurate if it is considered comprehensively with other valuation indicators such as price-to-book ratio and price-to-book ratio.

For example, the price-to-book ratio is also a commonly used valuation indicator, which refers to the ratio of stock price per share to net assets per share; There is also marketing rate, which refers to the ratio of stock price to sales per share. We generally think that P/E ratio, P/B ratio and P/B ratio are three commonly used indicators to measure whether a company is expensive or not. We have introduced it in detail in the previous program, so you can understand that the P/E ratio is more widely used and can measure the profit growth of a company more accurately. From the perspective of company liquidation, the P/B ratio can measure a company's "financial situation"; The sales rate index is mainly suitable for growth enterprises or high-tech enterprises, which can help investors to eliminate some companies with low P/E ratio, but their main business is not competitive enough, and they often rely on non-recurring gains and losses to beautify their statements.

Therefore, to judge the valuation of a sector or individual stock, rather than pursuing absoluteness, it is better to make a comprehensive comparison from multiple angles. In addition to these three indicators, professional investment researchers will also use other valuation indicators such as DCF and ROE to more accurately understand the valuation of a sector. These indicators may be more complicated for us ordinary investors, so it is also a wise choice to hand over the investment to professional fund managers.