Forward P/E ratios now hovering near 18x — right at the 2000-to-present average. The long-term mean sits closer to 15x, but lower rates, cooling inflation, and expanding earnings have pushed multiples higher.
This isn't irrational exuberance territory yet, but it's worth remembering: valuation is a mean-reverting beast. When rates rise or earnings disappoint, that 18x can compress fast. We're not cheap anymore — we're fairly valued at best, stretched if optimism falters.
Historically, buying at 18x forward has delivered mediocre 5-year returns. The math doesn't lie: higher entry multiples = lower future IRRs. If you're deploying capital today, you're paying for perfection. Make sure the companies you own can deliver it.
This isn't irrational exuberance territory yet, but it's worth remembering: valuation is a mean-reverting beast. When rates rise or earnings disappoint, that 18x can compress fast. We're not cheap anymore — we're fairly valued at best, stretched if optimism falters.
Historically, buying at 18x forward has delivered mediocre 5-year returns. The math doesn't lie: higher entry multiples = lower future IRRs. If you're deploying capital today, you're paying for perfection. Make sure the companies you own can deliver it.