According to NYU’s Stern School of Business, as of January 2015, using trailing 12-month data, the average price-to-earnings (P/E) ratio of the retail sector is 33.30. The P/E is commonly used in fundamental analysis as a valuation metric. Fundamental investors use it to determine whether a company’s stock price is appropriate in relation to the earnings per share (EPS) generated by the company.
Explaining the Average P/E Ratio of the Retail Sector
The P/E ratio is calculated by dividing a company’s market price per share by its EPS. NYU’s Stern School publishes P/E data for different industries, and the retail sector is divided into seven categories, which include automotive; building supply; distributors; general; grocery and food; online; and special lines retail companies.
As of January 2015, based on trailing 12-month data, the data of the P/E ratios of these companies combines all retail companies, with an average trailing P/E of 33.30. This value ranges from a low of 19.44, which is the average of automotive retail companies to a high of 59.46, which is the average of online retail companies.
Building supply retail companies have an average P/E ratio of 29.90, distributors retail companies have an average of 29.24, general retail companies have an average of 27.65, grocery and food retail companies have an average of 31.83, and special lines retail companies have an average P/E ratio of 35.59.
The average P/E ratio of the retail sector is calculated using the arithmetic mean average. The retail sector’s P/E ratio is calculated as (19.44 + 27.65 + 29.24 + 29.90 + 31.83 + 35.59 + 59.46) / 7. This average includes large-cap stocks, such as Walmart, Costco Wholesale Corporation, Dollar Tree Incorporated and Macy’s Incorporated.