P/E remains one of the most used metrics to value stocks. It is very easy to compute. But it’s not always easy to interpret. « Most investors fail to have a clear sense of what a particular multiple implies about a company’s future financial performance and don’t understand how multiples change over time », according to Michael Mauboussin and Dan Callahan in a report published in 2014 by Credit Suisse (this article is mainly based on their note which you can read here).
After the Brits, the French are making the headlines, not for the best. The market is slowly pricing the possibility that a far-right movement (Front National) might win at the next presidential election.
The risk here is that such a vote might provoke a sharp market correction that could have global ripple effects, since France is the 2nd largest economy of the eurozone and has been at the core of the European project since the 50s – something the Front National is openly questioning by promoting the « Frexit ».
According to SocGen’s strategy team, this is how the French market might react if French government yield were to rise slightly: