CAPE / Shiller PE RatioThe CAPE (Cyclically Adjusted Price-to-Earnings) or Shiller PE ratio is a popular valuation measure used by investors to assess whether a stock or index is over or undervalued relative to its historical earnings. Unlike the traditional P/E ratio, the CAPE ratio smooths earnings over ten years, adjusting for inflation and providing a more stable and long-term view of valuation.
This indicator lets you quickly calculate and visualize the CAPE ratio for any stock on TradingView, helping you make informed decisions about the sustainability of current price levels. With its clear presentation and intuitive setup, you can compare historical CAPE levels and identify potential opportunities for long-term investments or avoid overvalued markets.
Advantages of the CAPE Ratio:
Long-Term Focus : Smooth earnings over ten years, reducing the impact of short-term volatility.
Inflation-Adjusted : Provides a more precise, inflation-adjusted valuation measure over time.
Historical Comparison : Allows for benchmarking against long-term historical averages.
Market Sentiment Indicator : Can highlight overvalued or undervalued markets for long-term investors.
Reduces Noise : Filters out short-term earnings fluctuations, offering a more stable view.
Disadvantages of the CAPE Ratio:
Ignores Recent Earnings : Misses short-term earnings changes, which can affect current valuations.
Outdated Data : Relies on old earnings data that may not reflect recent company performance.
Less Effective for Growth Stocks : May undervalue high-growth stocks focused on future earnings.
Sector Limitations : Works best for broad markets, less so for fast-changing industries.
Debated Predictive Power : It’s unreliable for timing short-term market movements.
In short, the CAPE ratio is excellent for long-term valuation but has limitations for short-term or growth-focused investing.
Disclaimer
Please remember that past performance may not be indicative of future results.
Due to various factors, including changing market conditions, the strategy may no longer perform as well as in historical backtesting.
This post and the script don’t provide any financial advice.
Stockvaluation
Stock Value EUThere are many method of measuring value of stock. However I'm proposing most basic stock valuation based on Book Value, Earnings , Dividends and Money Supply:
SV = (BVPS + EPS + DPS ) * ( M3 /M1)
BVPS = Book Value Per Share (Asset - Liability)
EPS = Earnings Per Share
DPS = Dividends Per Share
M3 = M3 Money Supply (Money Market)
M1 = M1 Money Supply (Base Money)
Fundamental value of a stock should be determine by it's BV which means total asset of a company if were liquidated today and use some of it's asset to pay of the debt. So technically BVPS is the intrinsic value of a stock. However the company is generating an earning which is profit and loss that should be added on top of the fundamental value of company, so thus EPS should be added on top of Book Value Per Share. Aside from earnings , the stock that you purchase give you dividends as your return so DPS also can be included on top of that. So all in all BVPS, EPS and DPS are the primary valuation of the stock. However most of the stock are traded way higher than their fundamental valuation. The main reason of this is the market dynamics which is driven by central banks printing of base money supply M0. The banking credit system then lend out this money to money markets as loan so that peoples can invest and by the company stock. This money supply extension of credit is known as money market M2 which drive the stock inflated price. The ratio between M2 and M0 are the money multiplier effect that drives the stock price higher than it's valuation. So the Stock Value should be the total number of BVPS + EPS + DPS times the M2 money multiplier as shown by this indicator.
If the stock are traded above their SV value, that means it's an overpriced bubble
If the stock are traded below their SV value, that means it's an underpriced burst
This indicator is only applicable for EU based stock chart, because we use EU money supply to do the money multiplier calculation. For other country stocks take a look our other indicator:
- Stock Value EU - applicable for European stocks
- Stock Value CN - applicable for Chinese stocks
- Valuation Rainbow - applicable for all countries
Valuation RainbowValuation Rainbow
© danny_peanuts
Stock value based on Book Value, Earnings, Dividends and Money Multiplier
SV = (BVPS + EPS + DPS) * MM
BVPS = Book Value Per Share
EPS = Earnings Per Share
DPS = Dividends Per Share
MM = Money Multiplier - Integer Number from 1,2,3, ... ,7
There are multiple ways of valuing the stock. Book value is traditionally used as the basic valuation since it's calculate the total asset value minus the liabilities of any company. There are valuation based on multiplication of book value, there are valuation based on multiplication of earnings, and valuation based on multiplication of dividends. Here I'm proposing valuation based on all of these combined. So this indicator is measuring stock value based on multiplication of book value plus earning plus dividend per share. Since the money supply could have an multiplication effect so does the stock value could have a multiplication effect. Also notes that some blue chips stock tends to value higher than startup stock due to money is not equally distributed. So for simplicity I will use simple integer number to represent this multiplication effect as rainbow color plots, thus it can be applied to any stock at any given countries. The higher the stock price on valuation bands the most expensive it is and the lower the price on valuation bands the cheaper it is.
Stock Value - How Much Stock Should Worth?Stock Value
© danny_peanuts
There are many method of measuring value of stock. However I'm proposing most basic stock valuation based on Book Value, Earnings, Dividends and Money Supply:
SV = (BVPS + EPS + DPS) * (M2/M0)
BVPS = Book Value Per Share (Asset - Liability)
EPS = Earnings Per Share
DPS = Dividends Per Share
M2 = M2 Money Supply (Money Market)
M0 = M0 Money Supply (Base Money)
Fundamental value of a stock should be determine by it's BV which means total asset of a company if were liquidated today and use some of it's asset to pay of the debt. So technically BVPS is the intrinsic value of a stock. However the company is generating an earning which is profit and loss that should be added on top of the fundamental value of company, so thus EPS should be added on top of Book Value Per Share. Aside from earnings, the stock that you purchase give you dividends as your return so DPS also can be included on top of that. So all in all BVPS, EPS and DPS are the primary valuation of the stock. However most of the stock are traded way higher than their fundamental valuation. The main reason of this is the market dynamics which is driven by central banks printing of base money supply M0. The banking credit system then lend out this money to money markets as loan so that peoples can invest and by the company stock. This money supply extension of credit is known as money market M2 which drive the stock inflated price. The ratio between M2 and M0 are the money multiplier effect that drives the stock price higher than it's valuation. So the Stock Value should be the total number of BVPS + EPS + DPS times the M2 money multiplier as shown by this indicator.
If the stock are traded above their SV value, that means it's an overpriced bubble
If the stock are traded below their SV value, that means it's an underpriced burst
Stock Fair Value (SFV)Stock Fair Value (SFV) is an indicator that displays an estimated fair value per share price for the business. It uses fundamental data including future consensus earnings estimates from Wall Street analysts, how fast the business is growing, and the balance sheet to come up with a number that approximates what a fair price would be to pay for the stock. In the top right hand corner of the Indicator is a highlighted box showing the % difference from the current price and the Fair Value price, if the box is green it means the stock is currently undervalued by that much % below the Fair Value price, if the box is red it means the stock is currently overvalued by that much % above the Fair Value price.
The indicator formula also uses the current market price as an input, as there is information about the business baked into the current stock price that isn't apparent in fundamental data that I believe deserves to affect the fair value price. This indicator uses my own unique formula, it is not a standard Discounted Cash flow (DCF) model nor is it based on any other published valuation formula or model. As this indicator uses fundamental data there isn't any changeable settings for the user.
This indicator is designed for stocks only and isn't applicable on other markets like forex, futures or crypto. It can be used on the daily, weekly or monthly time frames as the value doesn't change. It's designed to be part of an overall investment process for stock investors with medium to long term timeframes, it's not suited for short term trading like most valuation strategies.
Please note like any indicator it's not perfect as there's only so much input that can go into it, therefore use it as a rough guide as to what the fair value of a stock could be, there are of course many other factors that can and will affect what a fair price of a business should be. As value investors, we ideally want to buy safe quality growing businesses that are at least 30% below fair value then hold them until the stock trades back up to fair value or above. This indicator can help with what all value investors are trying to do, that is buy low and sell high. It can also be used to avoid expensive stocks as they may have more downside risk with less upside potential.
If you see the Stock Fair Value price make a drastic and significant move overnight that's because some new fundamental data has come into the system, it could be new consensus earnings estimates or a change in business growth rates that causes a sudden and significant shift in the calculated fair value.
As you can see from the chart above of Alibaba NYSE:BABA the Stock Fair Value indicator is showing a current reading of $385.12 per share. At the current date of this writing, 11th January 2021, the current price of BABA is $132.19 which is 65.68% below the Stock Fair Value price of $385.12 and makes this stock one of the most undervalued large cap stocks listed on the New York Stock Exchange according to this indicator.
It's also worth noting that Charlie Munger, Vice Chairman of Berkshire Hathaway NYSE:BRK.B and long term business partner of Warren Buffett, has recently been accumulating a large position in NYSE:BABA which as a lifelong devotee of value investing suggests he sees great value in Alibaba at current prices just as the Stock Fair Value Indicator is suggesting too.
Other examples of large cap stocks that are currently significantly undervalued according to this indicator are;
AT&T NYSE:T (40.72% undervalued)
Citigroup NYSE:C (51.97% undervalued)
Fedex NYSE:FDX (41.94% undervalued)
To get access to this indicator PM or email me to my address shown below.
Enjoy :)
Disclaimer: All my scripts and content are for educational purposes only. I'm not a financial advisor and do not give personal finance advice. Past performance is no guarantee of future performance. Please trade at your own risk.
Stock Crash Risk (SCR)Stock Crash Risk (SCR) is an indicator that can be used to identify when a stock may be vulnerable to a crash. It's value is always between 1 meaning a very low risk of a crash to a high of 10 meaning a very high risk of a crash. Generally speaking readings above 8 should be considered high and caution used when investing in a stock. The only setting that can be changed by users is the lookback which by default is set to 7, meaning the indicator looks back at 7 months of price data to help determine the reading, it's recommended that users leave this setting to the default. This indicator is not designed for short term trading, the implications of high readings are usually months in advance so it's more suited towards stock investors however it can still be used to gauge potential crash risks for shorter term trades.
The indicator uses both price action and fundamental valuation metrics to calculate the reading. Generally speaking, when a stock price exhibits both extreme price sentiment and valuation it's likely to crash at some point. This indicator can also be used for the opposite use, meaning when it has a low reading under 3 it could be a good time to buy since both price and valuation are low.
This indicator is best used on stocks on the daily, weekly and monthly timeframes. It's value will always be the same regardless of what timeframe is used. Since it uses stock valuation this indicator cannot be used on other markets like forex, futures or crypto.
In the chart above you can see it applied to Peloton $PTON on the weekly timeframe, you can see for most of the latter part of 2020 it had high readings above 9 indicating the stock is vulnerable to a crash which did subsequently happen over the following year. After reaching a high price of $171 in early January 2021 it fell 82% to a low of $31 within a year.
Below is another example of Zoom Video $ZM with a similar pattern to Peloton, after showing high Stock Crash Risk readings above 9 it did subsequently crash over 70% the following 12 months.
Here's another example with Upstart $UPST, after reaching a peak price of $401 in October 2021 with a SCR reading of 9.45 it subsequently crashed more than 73% over the next 3 months.
To get access to this indicator PM or email me to my address shown below.
Enjoy :)
Disclaimer: All my scripts and content are for educational purposes only. I'm not a financial advisor and do not give personal finance advice. Past performance is no guarantee of future performance. Please trade at your own risk.
