Matthew Chkautovich, Dimitrios G. Tsiribas, Alex H. Van Tiem



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Many financial analysts prefer to normalize a firm's key drivers of growth i.e., revenues and earnings, in order to obtain a clearer picture of its financial prospects. In this study, we look at a sample of stocks from the Dow Jones Industrial Average to evaluate normalized price-earnings ratios. Using 5 and 10 year averages of earnings and current price i.e. P/NE, we compare the Normalized Price-Earnings Ratio to the firm's price-earnings ratio with current earnings. If P/NE is greater than P/CE, we would expect P/CE to trend upwards especially over short periods of time. If P/NE < P/CE, we would expect P/CE to trend downward. In both cases, we would expect the stock price to be the primary mover over short periods of time, i.e. 6-12 months. We test our hypothesis for the year 2012 based on 10 years of previous data.

Publication Date


Project Designation

Independent Research

Primary Advisor

Robert D. Dean

Primary Advisor's Department

Davis Center for Portfolio Management


Stander Symposium project

Using Normalized P/E Ratios to Project Future Stock Price Movement