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Jim Cramer: Maybe Investors Aren't Paying As Much For Corporate Earnings

Jim Cramer: Maybe Investors Aren't Paying As Much For Corporate Earnings

Many investors are clinging on to one key metric which may indicate the bull rally has come to an end. The Shiller P/E ratio is at the highest it has been in years, which implies investors are paying more for each $1 in earnings than they have in the past.

But CNBC's Jim Cramer isn't convinced.

During Wednesday's segment of "Squawk on the Street" Cramer used two retailing giants' earnings report to cast doubt on the usefulness of the Shiller P/E ratio. Specifically, Wal-Mart Stores Inc (NYSE: WMT) and Home Depot Inc (NYSE: HD) reported an earnings report that was "so much better than expected" and proof investors aren't overpaying for corporate earnings.

Cramer even suggested that the struggling retailer Macy's Inc (NYSE: M) reported a quarter that "wasn't even that bad."

Related Link: Jim Cramer On JPMorgan: Best Quarter Ever

"When I hear that we are paying too much I always say 'are we paying too much for forward earnings or paying too much for current earnings,'" Cramer continued. "Because if you listen to the commentary of these companies you would say 'you know what, it's a different game, whatever has been going on is over, and the numbers are going to be much better.'"

Cramer also offered a few other examples to support his thesis that investors are willing to pay more for stocks today. He noted that investors are now scrambling to buy the drug stock with the highest P/E ratio — Bristol-Myers Squibb Co (NYSE: BMY).

Cramer also pointed out the highest valued consumer products good company, Procter & Gamble Co (NYSE: PG), is still attractive enough for Nelson Peltz's Trian Management firm to invest billions of dollars.

Image Credit: By Tulane Public Relations [CC BY 2.0], via Wikimedia Commons

Posted-In: Jim Cramer Shiller PE Ratio Squawk on the Street Stock Valuations Jim CramerEducation Media General Best of Benzinga


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