Is the Spanish stock market expensive? Historical analysis by ratios

Is the Spanish stock market expensive?Even though I am not an investor in índices bursátiles, it never hurts to take a look at the general valuations of the bag to get an idea of ​​whether it is expensive or cheap. To analyze the general valuation of the Spanish stock market I will use 3 basic metrics (PER, CAPE and dividend yield) and I will compare them with their historical average. In this article we will see a historical comparison of these metrics or basic ratios to determine if the Spanish stock market is expensive.

Metrics used: PER ratio, CAPE ratio and dividend yield

We are going to use 3 metrics:

  • El ratioFOR: Which compares the total profits of listed companies with their capitalization bursátil.
  • El ratio CAPE: Which compares the average earnings of the last 10 years adjusted for inflation with the market capitalization.
  • The dividend yield: Which compares the total amount of dividends distributed in the stock market with the market capitalization of the market.

Below we will analyze each of these metrics separately before reaching a final conclusion.

Historical PER ratio of the Spanish stock market

Historical PER of the Spanish stock market

Historical PER of the Spanish stock market

According to the graph, the PER of the Spanish stock market is at historically high levels. If we are guided solely by the PER ratio, the Spanish stock market would be expensive.

To deepen the analysis, we are going to see what the following metrics suggest.

Historical CAPE ratio of the Spanish stock market

Historical CAPE of the Spanish stock market

Historical CAPE of the Spanish stock market

Contrary to what happens with the PER, the average CAPE of the Spanish stock market is at historically low levels. Therefore, by this metric, the bag would be cheap.

In my opinion, this metric may be distorted because of the triple bubble that the Spanish economy experienced, which caused many of its companies to present tremendously large profits. Therefore, we should not trust this ratio 100%.

Dividend yield of the Spanish stock market

Historical dividend yield of the Spanish stock market

Historical dividend yield of the Spanish stock market

The last metric shows intermediate levels. Dividend yield is more or less at its historical average.

However, I also consider that this metric may also be distorted, this time by inflation. Taking into account that inflation in Spain is at very low levels in relation to the last decades, we can conclude that the real dividend yield (that is, taking into account the loss of purchasing power) is higher than the average.

Is the Spanish stock market expensive?

In my opinion, after analyzing these three metrics, the Spanish stock market is not at extreme levels. That is, I cannot conclude not that the Spanish stock market is expensive, but neither that it is trading at bargain prices.

Before closing, I want to make a very important clarification. The fact that the Spanish stock market is neither expensive nor cheap does not mean that there are no undervalued or overvalued companies on the market.

Our job as investors should be to try to separate the wheat from the chaff and find good companies that are listed at reasonable prices.

Finally, I would like to ask your opinion on this subject.

Do you think that the Spanish stock market is expensive?

I await your comments!