Sure, I would count the money losing subsidiaries of profitable companies, providing the company includes them as part of its operations.
Michael, here are the current PE ratios you posted earlier:
As of today the PE ratios are as follows:
Dow 24.97
S&P 22.37
Nas 27.83
Rus 138.62
That is saying that investors are paying nearly 6X as much for a dollar of earnings in small cap stocks compared to large companies. That makes no sense to me. Intuitively, investors would pay less per dollar of earnings for the small caps. Why?
Small cap stocks are more volatile and riskier than large caps. The returns need to be higher to compensate, thus lower PEs.
Most fund and institutional money won't invest in small caps. Less money chasing the group also reduces their valuations.
There are different ways to calculate averages too depending on whether one uses mean, median, or mode. In the example I gave earlier where 9 stocks were selling at a PE of 10 and one stock had big losses:
The mean PE of that group was 100.
The median PE of that group was 10.
The mode of the group was also 10.
In my mind, using the mean or mode gives a more accurate representation of their average PE. I don't believe that investors are so irrational that they willingly pay 6X more for small cap stocks than large caps.
Whoever calculated those average PEs you posted by group must be using the mean, which distorts the results, IMO.
