Price To Book – 2008 to NowJune 17, 2014
It is easy to forget just how low valuations were in 2008 and how much they have expanded in the past six years. Below is a massive table showing the equal-weighted, average Price to Book ratio for 153 sub-industries in the MSCI World (we did not include the Renewable Electricity sub-industry because we did not have data that goes back to 2008)
Starting at the 30,000 foot view, the average price to book value for all sub-industries in 2008 was 2.3x. That has increased by 48% to 3.4x as of the end of May (this is a monthly data set). The MSCI World Index is up a little over 90% from the end of 2008 to May 2014. So a little over half of the gain can be attributed to margin expansion (looking at this single valuation statistic).
Within the sub-industries, there is a wide dispersion of multiple expansion changes. On the high end you have the Casino & Gaming sub-industry that has it’s P/B ratio increase from 1.5x in 2008 to 11.8x (671% increase). Right behind it are the Department Stores where they have seen an increase of 405% (1.1x to 5.6x). Overall, just about a quarter of all sub-industries that have seen their valuations expand by over 100% since 2008 (37 sub-industries in all).
On the low end, we actually have 23 sub-industries that have seen multiples contract over the past six years. The leader of the losers is the Hotels Resorts & Cruise Lines. P/B multiples have contracted by nearly three quarters (72%) since 2008. However, the three largest contractors seem to have a base effect problem. 2009 looks to be the cycle low for them, not 2008, and when we calculate their change since 2009 their declines moderate significantly (and in the case of Metal & Glass Containers they actually have experienced a significant margin expansion).