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Stock PE Value % of total PE Fraction

Stock A 6 5000 58.82 3.53
Stock B 200 500 5.88 11.76
Stock C 18 2000 23.53 4.24
Stock D 45 1000 11.76 5.29

8500 100.00 24.82

The PE average is the sum of the PE fractions or in this case 24.82.

Stocks with very high PEs or no earnings must be dealt with. I use a
dummy value of 200.

Fraction arithmetic doesn't actually work this way, and this is shown by your calculation which obtains the wrong result. Stock A has a low PE (6), and constitutes almost 2/3 of your 4-stock portfolio, so even if the 3 other stocks had zero earnings, your PE should be just over 10. If the other 3 stocks have any earnings at all, the real average would be under 10.

It would be methodologically better to add a column, 'Earnings', so that for chart becomes:

Stock PE Value Earnings % of total PE Fraction

Stock A 6 5000 833.3 58.82 3.53
Stock B 200 500 2.5 5.88 11.76
Stock C 18 2000 111.1 23.53 4.24
Stock D 45 1000 22.2 11.76 5.29

Total 8500 969.16 100.00 24.82

Your average P/E is now just the sum of the Value (price) divided by the sume of the E (earnings), in other words, 8500/969.17 = 8.77.

This method handles high or negative ratios without the need for any dummy value, and in fact you don't need your last 2 columns either. Your actual results might be a little different, since Stock B's earnings are maybe not 2.5, if that 200 multiple was a dummy.

Regards, DTM
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