For a cyclical, earnings in any given year are not a reliable measure of a company's true earning power. To avoid overreliance on a single year's results, look at United Technologies' "normalized" earnings: the average of the company's earnings from the past five years. Normalized earnings give a smoother valuation picture, especially for companies with erratic earnings.
United Technologies earned an average of $2.17 per share annually between 1995 and 1999. At its share price of $65 at the end of 1999, that works out to a normalized P/E ratio of 30. If the future turns out anything like the past, United Technologies' shares are pretty darn expensive for this type of stock.
How Does the Price/Sales Ratio Compare with Historical Levels? >>