In an earlier article, I made a case that the reported earnings of the S&P 500 (NYSEARCA:SPY) are a better indication of the earnings power of the underlying index. That is, that the "correct" trailing P/E to use was closer to 19, rather than 17.
Now, we come to the part to check if a P/E of 19 is too high, low or fairly valued. One starts to do this by using the "justified" P/E formula
b = earnings retention ratio (so 1-b is dividend payout ratio)
g= growth rate
r= required return
If one wants the leading P/E then the formula is reduced as follows:
One can use this link for further explanation or one can Google "Justified P/E." We can find the data from the S&P indices web page and download it as an excel file, just look under "Additional Info" and then "Index Earnings."