Q: What is a stock’s “multiple”?
A: “Multiple” usually just refers to a stock’s price-to-earnings ratio (or P/E).
You get a multiple by dividing a stock’s price by something, such as earnings (via the P/E ratio) or revenues (via a price-to-sales ratio). Imagine a company’s stock that is trading at $30 per share. It earned $2 per share over the past year, so its P/E is 15 (30 divided by 2 equals 15). You might refer to it as trading at an earnings multiple of 15.
If you read analyses of various companies, you’ll see references to price-to-sales multiples, book-value multiples, cash-flow multiples and more.
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It’s instructive to compare a company’s various multiples with those of its peers, to see whether its stock appears to be undervalued or overvalued.