{"id":64335,"date":"2026-05-06T09:24:31","date_gmt":"2026-05-06T09:24:31","guid":{"rendered":"https:\/\/thepatientinvestor.com\/?page_id=64335"},"modified":"2026-06-20T07:50:03","modified_gmt":"2026-06-20T07:50:03","slug":"asx-stock-market-valuation-indicator","status":"publish","type":"page","link":"https:\/\/thepatientinvestor.com\/index.php\/asx-stock-market-valuation-indicator\/","title":{"rendered":"ASX Stock Market Pricing"},"content":{"rendered":"
\"Stock<\/div>\n

Stock market pricing indicates whether stocks are cheap or expensive in relation to earnings, but it is a poor indicator of market timing<\/strong>. High market valuations should not be taken as a sell signal. “Markets can remain irrational for longer than you or I can remain solvent” John Maynard Keynes is purported to have said. However, we advise caution if you are considering new positions or adding to existing positions when stock prices are high.<\/p>\n

Stock Pricing<\/h2>\n

ASX stock pricing recovered to 75.52 from a low of 73.96 percent last week. Our highest reading was 92.23 percent in August 2025, with a low of 67.85 percent in April 2025.<\/p>\n

\"ASX<\/p>\n

We use z-scores to measure each indicator’s current position relative to its historical data, with results expressed in standard deviations from the mean. We then calculate an average of the five readings and convert that to a percentile. The higher stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.<\/p>\n<\/div>\n

Buffett Indicator<\/h3>\n

The Warren Buffett indicator compares stock market capitalization to GDP, providing a stable, long-term ratio unaffected by fluctuating profit margins. The ratio of 1.12 for May 2026 is high but not excessive relative to its long-term mean of 1.02.<\/p>\n

\"ASX<\/p>\n<\/div>\n

ASX 20 Price-to-Sales Ratio<\/h3>\n

The Price-to-Sales ratio for the ASX 20 increased to 4.27 from 4.24 last week. We use a 20% trimmed mean of the Price-to-Sales ratio for index stocks to remove the highest and lowest readings, which tend to distort the average.<\/p>\n

\"ASX<\/p>\n<\/div>\n

ASX 20 Forward Price-Earnings Ratio<\/h3>\n

The Forward Price-Earnings ratio for the ASX 20 lifted to 18.65 from 18.31 last week. We have limited data on the ASX 20 forward PE, but it still provides a useful measure of current value. We use a 20% trimmed mean to avoid distortions of the average caused by outliers.<\/p>\n

\"ASX<\/p>\n<\/div>\n

All Ordinaries Price-Earnings Ratio<\/h3>\n

The All Ordinaries price-to-earnings (PE) ratio is high at 21.44. If we ignore the 2020 distortion caused by low earnings, PE values above 20 indicate high pricing. The PE ratio is based on the latest trailing earnings (red below), but produces extreme readings if earnings per share (EPS) rises or falls sharply, as in 2008 or 2020. That is why we also use a separate PE based on highest trailing earnings.<\/p>\n

\"ASX<\/p>\n<\/div>\n

All Ordinaries PE of Highest Trailing Earnings<\/h3>\n

We use a Price-Earnings ratio based on the highest trailing earnings for the All Ordinaries Index to eliminate extreme readings when earnings fall sharply. Values above 16.0 indicate that stocks are highly priced, while values below 12 indicate low prices.<\/p>\n

However, the ASX has volatile earnings due to the large resources sector. The commodity cycle boom-bust effect necessitates the use of both price-earnings ratios \u2014 based on trailing earnings and highest trailing earnings \u2014 to provide a more balanced view.<\/p>\n

\"ASX<\/p>\n<\/div>\n

All Ordinaries Dividend Yield<\/h3>\n

The All Ordinaries dividend yield is below its long-term mean of 4.1%, indicating values are on the high side.<\/p>\n

\"ASX<\/p>\n

Lower yields indicate higher values, so we reverse the z-score for the ASX dividend yield.<\/p>\n<\/div>\n

Conclusion<\/h2>\n

Stock pricing remains high, with risk of a significant drawdown.<\/p>\n

Acknowledgments<\/h4>\n