Is P/E Ratio floundering… as an investment metric?
Price / Earnings (P/E) ratio, along with other price relative valuation metrics, used to be an important investment metric in choosing equities investment… the higher it is, the more cautious you should be. Simplistically, it's the inverse of the basic Return on Investment (%) metric that we all use for all types of investments. Flip the P/E and you get your Earnings Yield (% return). A P/E of 20 is an Earnings Yield (E/P) of 5% per annum. Find below a sample P/E list of the Magnificent-7 and the popular indexes ETFs with their corresponding Earnings Yields as of closing October 13, 2026.
| Name | P/E | Earnings yield |
|---|---|---|
| Alphabet (GOOGL) | 17.70 | 5.65% |
| Amazon (AMZN) | 20.87 | 4.79% |
| Nvidia (NVDA) | 28.90 | 3.46% |
| Meta (META) | 28.00 | 3.57% |
| Microsoft (MSFT) | 30.28 | 3.30% |
| Apple (AAPL) | 39.12 | 2.56% |
| Tesla (TSLA) | 389.33 | 0.26% |
| SPY (S&P 500) | 25.15 | 3.98% |
| DIA (Dow) | 21.74 | 4.60% |
| QQQ (Nasdaq-100) | 29.42 | 3.40% |
Tesla is 0.26% for God's sake! Granted there are all sorts of non-cash, non-operating, non-continuing entries that need adjustment for P/E valuation hence "phantoms" of Price/EBITDA, Price/Operating Cashflow, Price/Sales etc, but at the end of the day, net sustainable earnings and operating cashflows are key.
So, why are we investing in yields below "risk-free" Treasuries (current "10-year"s yielding about 5.2%)? You know why? It's liquidity gone amok… And what's amok liquidity in the stock market? It is simply the prayerful belief that someone is going to buy this stock off me (at a profit from me) irrespective of the nonsensical price/valuation. Don't worry. Wall Street is always at the ready to help you there… an immense liquidity harvesting machine to push prices, Wall Street, that is! Beware of dark clouds on the horizon.
Market Musings are for general information only and are not investment advice or a recommendation to buy or sell any security. Opinions are those of Portfolio Advisory Partners, LLC as of the date posted and may change without notice. Investing involves risk, including the loss of principal. Past performance does not guarantee future results.