Vanguard S&P 500 ETF (VOO): Examining Valuation After Recent Price Swings

Vanguard Index Funds: Vanguard S&P 500 ETF (VOO) has quietly moved onto the radar of investors once again, with recent price swings raising a few eyebrows. There is no major headline or single market-moving event driving these price changes. However, the shift is catching attention, as it comes amid an ongoing debate about the state of the broader market. When VOO sees a swing, whether small or large, it often sparks a discussion about value, risk, and timing, given its role as a bellwether for the largest U.S. companies.

Compared to earlier in the year, VOO has been building positive momentum, gaining 11% over the past month and nearly 16% over the last year, both outpacing broader index funds. Recent price action suggests steady optimism, with short-term dips quickly corrected, and a three-year return currently at 58%. While external events have influenced the overall market, VOO’s performance has largely tracked expectations, reflecting the strength and resilience of the S&P 500 constituents. There has been little drama or surprise in headlines recently.

After a period of steady gains, the question becomes whether VOO is still offering value, or if these returns suggest that the market has already priced in all future growth. Is now a smart entry point, or has the best opportunity already passed?

Price-to-Earnings of 6.5x: Is it justified?

Based on its Price-to-Earnings (P/E) ratio, VOO appears significantly undervalued compared to peers, trading at just 6.5 times earnings while the average for the US Capital Markets industry is 26 times. This suggests the fund may be priced well below the market’s expectations.

The Price-to-Earnings ratio measures how much investors are willing to pay for each dollar of earnings. In the case of index funds like VOO, a low P/E may reflect skepticism about future growth or overlooked opportunities. This makes the metric a key tool for assessing relative value in the sector.

VOO’s current valuation could mean the market is not fully appreciating the fund’s earnings power. With such a significant discount to the industry, this presents a potential value opportunity for investors willing to look beyond current sentiment and focus on fundamentals.

Result: Fair Value of $961.89 (UNDERVALUED)

See our latest analysis for Vanguard Index Funds - Vanguard S&P 500 ETF.

However, risks remain, as broader economic headwinds or unexpected earnings disappointments from key S&P 500 members could quickly shift sentiment around VOO.

Find out about the key risks to this Vanguard Index Funds - Vanguard S&P 500 ETF narrative.

Another View: Discounted Cash Flow Model

Taking a different approach, our DCF model also signals that VOO is undervalued at current levels. While both methods point to potential upside, they rely on different assumptions about future growth and returns. Can both be correct, or is the market missing an important factor?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Vanguard Index Funds - Vanguard S&P 500 ETF for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Vanguard Index Funds - Vanguard S&P 500 ETF Narrative

If you see the data differently or want to dig deeper, you have the option to build your own narrative in a matter of minutes, so do it your way.

A great starting point for your Vanguard Index Funds - Vanguard S&P 500 ETF research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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