Definition
For the Shiller P/E, the earnings of the past 10 years are inflation-adjusted and averaged. The result is used for P/E calculation. Since it looks at the average over the last 10 years, the Shiller P/E is also called PE10.
The Shiller P/E was first used by professor Robert Shiller to measure
the valuation of the overall market. The same calculation is applied here to individual companies.
Explanation
Compared with the regular P/E ratio, which works poorly for cyclical businesses, the Shiller P/E smoothed out the fluctuations of profit margins during business cycles. Therefore it is more accurate in reflecting the valuation of the company.
If a company has consistent business performance, the Shiller P/E should give similar results to regular P/E.
Compared with the P/S ratio, the Shiller P/E makes the comparison between different industries more meaningful.
Beaware
The Shiller P/E assumes that over the long term, businesses and profitability revert to their means. If a companys business model does not work in the future compared with the past, the Shiller P/E and P/S ratio will give false valuations.
Related Terms
P/B Ratio,
P/E Ratio,
P/S Ratio,
Price-to-Free-Cash-Flow ratio,
E10* All numbers are in millions except for per share dataPaychex, Inc. Annual Data
| May03 | May04 | May05 | May06 | May07 | May08 | May09 | May10 | May11 | May12 |
|---|
| ShillerPE |  | | | | | | | | | |
|---|
Paychex, Inc. Quarterly Data
| Nov10 | Feb11 | May11 | Aug11 | Nov11 | Feb12 | May12 | Aug12 | Nov12 | Feb13 |
|---|
| ShillerPE | | | | | | | | | | |
|---|
European Shorting
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