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Reported PE and PB ratio in Morningstar wrong?

Hi,
since morningstar does not report negative pb and pe ratios (according to the data reference page), I have decided to make my own PE and PB ratio calculations.

Now for the period 2003 - 2018 I have noticed a considerable amount of records that deviate from the morningstar numbers:

  • Negative book value but morningstar reports positive PB_ratio: 175,523 records
  • Negative EPS but morningstar reports positive PE_ratio: 1,112,629 records
  • Positive book value & difference between my calculation and Morningstar reported value of PB > 10: 79,043 records
  • Positive EPS & difference between my calculation and Morningstar reported value of PE > 10: 5,935,460 records

Attached is the notebook showing the calculations. Couple of questions I have:

Are my calculations correct?

If they are indeed correct, then I have the following questions:
1. Can the morningstar data feed be trusted?
2. Is the morningstar data feed quality controlled by Quantopian?
3. Is it a mistake to use the closing price from pipeline when calculating Price to ... ratios? Due to the adjustments as of backtesting date? Is it better to use the get_pricing feed?

Any other suggestions?

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4 responses

Anybody from Quantopian already had time to look into that?

The biggest reason why calculated ratios are not always the same as the retrieved values is because the individual data (used for calculations) is quarterly while the ratios are Trailing Twelve Month (TTM) data. Generally all the Morningstar data is quarterly, based on the latest 10Q, except for the Valuation Ratios which are TTM values.

Addressing some of the questions from above....

1. Are my calculations correct? Not entirely. The field Fundamentals.pe_ratio and Fundamentals.pb_ratio are trailing twelve month (TTM) values while the Fundamentals.diluted_eps_earnings_reports and Fundamentals.diluted_eps_earnings_reports are only the latest quarter numbers. One needs to get the trailing twelve months of data to compare to the Morningstar PE ratios. Moreover, one cannot really add the data unless the number of shares outstanding remained the same. To be correct, one would also need to calculate the weighted average number of common shares outstanding for the period. However, generally the calculated PE value will be about 4x the Morningstar field value. There may be times though, when the TTM earnings is negative while the latest quarter values are not (or vice versa). This leads to no values in the pe_ratio field but values for the calculated version (or vice versa). Generally the PB values will be the same as calculated except in cases where a company issues or buys back a lot of stock. If one sees a big delta in PB it's often because of this (one reason why companies like stock repurchases).

2. Can the morningstar data feed be trusted? Yes, Morningstar data is generally very good. There will always be 'issues' but that is true of any data source. The numbers presented on Yahoo or Google or other sites are no more or less certain than those presented by Morningstar. When in doubt, look at the company 10Qs.

Is the Morningstar data feed quality controlled by Quantopian? Generally no. Quantopian doesn't check or modify the data we receive from Morningstar. This is a typical feed one would get from them as an individual or institutional client.

3. Is it a mistake to use the closing price from pipeline when calculating Price to ... ratios? Due to the adjustments as of backtesting date? Is it better to use the get_pricing feed? Use the pipeline data. That is as of the same day as the fundamentals and therefore won't include any future splits and adjustments which haven't occurred yet. However, as noted above, one will typically need to take into account changes in shares when getting TTM data.

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Thank you Dan! Makes sense!

Hi Dan, new question:
How can I calculate the yearly numbers, e.g. net_income for 2018, if I only have quarterly data in the feed?
Is there a way to tell the pipeline engine that I would like Q1+Q2+Q3+Q4 for the respective year?

best regards
Stefan