Crestmont P/E is Warning Stock Market May Be Dangerously High. Crestmont Research’s Crestmont P/E gives us a better picture of price earnings. This helps evaluate the stock market. As you can see in the chart in blue below, its present valuation at 32.1 is just slightly below the P/E. This happened at about the time the stock market bubble burst in 2000. Why is the Crestmont P/E, created by Ed Easterling, a better way to look at price earnings on a historical basis? As Easterling explains it, “the business cycle constantly distorts earnings from its core baseline trend.” The Crestmont P/E compensates for that distortion by normalizing earnings based upon the relationship between historical nominal GDP and reported EPS.
Ed Easterling is the author of Probable Outcomes. Secular Stock Market Insights and award-winning, Unexpected Returns, Understanding Secular Stock Market Cycles. He is currently President of an investment management and research firm.