If I've understood that document correctly, they aren't saying anything about predicting performance of individual companies, they're looking at some sort of averaged P/E ratio and relating it to future performance of the stock market as a whole.
One way for that to work would be for individual stocks' P/E ratio to be indicative of their future performance, but there are others; e.g., maybe overall economic conditions influence both investors' attitudes and future performance. In the latter case, P/E ratio might be less useful (or outright useless) for comparing companies at a single time.
Agreed. I went with the first Google search result that was at all close to the question at hand; I recommend anyone more interested in the subject collect the data and run the numbers themselves.
In particular, one might want to compare residual P/E ratios--that company's P/E minus the S&P 500's P/E or the total stock market P/E--to future earnings growth in order to try to remove some of the time-dependent effects and specifically judge the market's ability to guess the earnings growth of individual companies.
One could, if they knew historical indust...
This thread is for asking any questions that might seem obvious, tangential, silly or what-have-you. Don't be shy, everyone has holes in their knowledge, though the fewer and the smaller we can make them, the better.
Please be respectful of other people's admitting ignorance and don't mock them for it, as they're doing a noble thing.
To any future monthly posters of SQ threads, please remember to add the "stupid_questions" tag.