Price-Earnings Multiple as an Investment Assessment Tool in Analyzing Stock Market Performance of Selected Universal Banks in the Philippines

Antonio J. Dayag and Fernando Trinidad
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Antonio J. Dayag: University of Sto. Tomas (UST), Espaňa, Manila
Fernando Trinidad: University of Sto. Tomas (UST) Graduate School, Espaňa, Manila

International Journal of Research in Business and Social Science (2147-4478), 2019, vol. 8, issue 4, 17-33

Abstract: Price-Earning Ratio or P/E Multiple is a widely used, straightforward investment assessment tool in developed countries. However, the method has not been utilized as much in stock market performance analysis in developing countries such as the Philippines. Using the top ten universal banks in the country, this paper utilized Price-Earnings Ratio [PER] as valuation tool and dependent variable, and sought to determine its value drivers. Used as independent variables are macroeconomic variables gross domestic product [GDP] growth rate, inflation rate, annual interest rate; stock market index Philippine Stock Exchange [PSEi]; and firm-specific variables return on equity [ROE], growth rate of ROE, growth rate of earnings per share, dividend payout ratio [DPO, growth rate of income, and price-book value [PBV] ratio. Results showed that among the independent variables, ROE, PBV ratio, and PSE index are statistically significant. The model’s (R2) is 63.7%, which is a fairly good fit. Key Words:Price-earnings Ratio, Universal Banks, Stock Valuation, Bank Valuation, Valuation Tools

Date: 2019
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