P/E ratios and earnings growth by sector

Where sector multiples stand, August 2026

In the United States, Communication Services has grown earnings fastest over three years at +35.7% a year and Energy slowest at −10.7%. The widest gap between the trailing and forward multiple is Information Technology, where the market has already priced in +78.7% growth over the coming year.

On the multiples themselves, Information Technology is the most expensive sector at 38.59 and Financials the least at 16.88. Real Estate is left out of that comparison: it carries a higher ratio than either, and for reasons that have nothing to do with being expensive.

Why the U.S. Real Estate P/E is so high, and why you should ignore it

Real Estate carries the highest trailing P/E of the eleven U.S. sectors, at 41.79, on earnings that have grown −0.7% a year over three years. At face value that is an expensive sector with no growth. It is neither: the ratio is close to meaningless for property companies, for three separate reasons.

The accounting. Depreciation on buildings is one of the largest expense lines a property company reports, and it is entirely non-cash: the building is written down over decades on the income statement while, in most markets and most decades, the asset itself holds or gains value. The denominator of this ratio is therefore a number the industry does not use. Property companies report funds from operations — net income with depreciation added back and property sale gains removed — and price to FFO is a far lower and far more comparable figure.

The legal structure. Most large U.S. property companies are real estate investment trusts, which pay no corporate income tax provided they distribute at least 90% of taxable income. A REIT therefore retains almost nothing, funds growth by issuing equity and debt rather than from profit, and reports an income figure built to satisfy a distribution test.

The operations. Net income is what remains of a large asset base after interest on a large debt load — a small residual of two big numbers, so a modest move in rents, occupancy or borrowing costs swings it by a large percentage. Lumpy gains on property sales run through it as well: a sector can post a strong earnings year because several buildings happened to be sold.

What to use instead. Price to book, for a sector whose value genuinely sits on the balance sheet. EV/EBITDA, which is measured above both depreciation and debt. Dividend yield, which is more informative here than elsewhere because the distribution requirement makes the payout a feature rather than a policy choice.

Why global ex-U.S. Financials looks cheaper than it is

The Financials row shows 16.88 in the United States against 11.34 outside it, and the gap is much wider than for any neighbouring sector. Most of that difference is not a judgement about non-U.S. banks in general.

Mainland Chinese banks trade at very low multiples — low single figures for the largest of them for much of the past decade — and they are a substantial weight in the global ex-U.S. Financials index. Because this ratio is an aggregate, total market capitalisation over total earnings rather than an average of the constituents' multiples, a large block of companies on very low multiples pulls the whole figure down in proportion to its size.

The consequence is practical. The global ex-U.S. Financials multiple is not a reading on European or Japanese banks, and using it as one materially overstates how cheap they are. Anyone comparing banking systems needs the constituent markets rather than the aggregate, and the country pages are where those sit.

Sectors cannot be ranked against each other on P/E

The ranking in the first table is the number people ask for and the weakest thing the measure does. Three sectors can carry identical multiples and be nothing alike.

Growth rates differ permanently. A sector compounding earnings at 20% a year deserves a higher multiple than one growing at 3%, and will carry one in every market and every decade. The scatter chart above is on the page for exactly this reason: a multiple and a growth rate read together say something a ranking cannot.

Cyclicality differs. Energy, Materials and Financials earn most in the good years, and their P/E ratios are lowest at the top of the cycle and highest at the bottom — the inverse of what the ratio appears to say. This is the standard trap in cyclical sectors, and it is why CAPE exists.

Accounting differs. Real Estate is the extreme case above, but it is a difference of degree rather than kind. Sectors with heavy intangible investment expense most of it as it is incurred, which depresses current earnings and raises the multiple; sectors with heavy physical investment capitalise it and depreciate it slowly.

The forward multiples

The gap between the trailing and forward P/E is the earnings growth analysts have priced in, and on a sector basis it is often very large. Information Technology at 38.59 trailing against its forward multiple implies +78.7% earnings growth over the coming twelve months.

Two cautions. Forward estimates are expectations rather than forecasts with a measured track record, and in aggregate they have a documented optimistic bias. And a sector's forward figure is dominated by its largest constituents, so an implied growth rate for a concentrated sector is largely a statement about a handful of companies.