A stable P/E ratio serves as a benchmark for valuation. Investors can compare current P/E ratios with historical averages to gauge whether a stock or the market in general is overvalued, undervalued, or fairly valued. This gives disciplined stock-pickers plenty of opportunity.
Investors who prioritise dividend yields find stability in P/E ratios advantageous. A stable P/E ratio can indicate a consistent relationship between stock prices and dividends, making it easier for income-focused investors to plan for cash flows.
In summary, a stable market P/E ratio provides investors with a sense of security, predictability and confidence, and reduces or eliminates the need to chase the more exotic opportunities that may present themselves from time to time.
Mark Clubb is executive chairman at Team Asset Management
