I think the natural P/E of ancompany, absent inflationary currency pressure and/or assuming the inflation pressure is cancelled out by the P/E measurement, is based on risk, growth potential, competition, the number of stocks issued, the earnings of the company and the present interest rate. I'm no financial guru, and I'm just guessing here, but I'm related to someone who used to roommate with the brother of a high school friend who got into a bar fight with a guy who's dad might know the answer to this... but I suspect that an extremely low risk, low growth, and low competition stock like utilities or life insurance would have a P/E that's equivalent to the bond interest rate of that same company. If they had to pay 5% on a bond, they should probably have a P/E around 20.
I think the natural P/E of ancompany, absent inflationary currency pressure and/or assuming the inflation pressure is cancelled out by the P/E measurement, is based on risk, growth potential, competition, the number of stocks issued, the earnings of the company and the present interest rate. I'm no financial guru, and I'm just guessing here, but I'm related to someone who used to roommate with the brother of a high school friend who got into a bar fight with a guy who's dad might know the answer to this... but I suspect that an extremely low risk, low growth, and low competition stock like utilities or life insurance would have a P/E that's equivalent to the bond interest rate of that same company. If they had to pay 5% on a bond, they should probably have a P/E around 20.