The pros and cons of the comparable/multiples valuation of the stocks

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Pros of Comparable/Multiples Valuation

• Simplicity: Comparable/multiples valuation is a relatively simple and straightforward valuation method. It can be used by investors of all experience levels.
• Transparency: Comparable/multiples valuation is a transparent valuation method. The data that is used to perform the valuation is publicly available, and the valuation process can be easily understood.
• Speed: Comparable/multiples valuation can be performed quickly. This can be useful for investors who need to make a valuation decision quickly.

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      Cons of Comparable/Multiples Valuation

• Accuracy: Comparable/multiples valuation is not always accurate. The accuracy of the valuation will depend on the quality of the comparable companies that are used and the accuracy of the multiples that are applied.
• Comparability: It can be difficult to find comparable companies that are truly comparable to the company being valued. This is because every company is unique.
• Multiples: Multiples can fluctuate over time, and they can vary from industry to industry. This can make it difficult to choose the right multiples to use.

Most Popular Multiplicators for Stock Valuation The most popular multiplicators for stock valuation include:

• Price-to-earnings ratio (P/E ratio): The P/E ratio is calculated by dividing the company's stock price by its earnings per share. The P/E ratio is a measure of how much investors are willing to pay for each dollar of the company's earnings.
• Enterprise value-to-EBITDA ratio (EV/EBITDA ratio): The EV/EBITDA ratio is calculated by dividing the company's enterprise value by its earnings before interest, taxes, depreciation, and amortization (EBITDA). The EV/EBITDA ratio is a measure of how much investors are willing to pay for each dollar of the company's EBITDA.
• Price-to-book ratio (P/B ratio): The P/B ratio is calculated by dividing the company's stock price by its book value per share. The P/B ratio is a measure of how much investors are willing to pay for each dollar of the company's book value.

Other popular multiplicators include:

• Price-to-sales ratio (P/S ratio)
• Price-to-cash flow ratio (P/CF ratio)
• Price-to-free cash flow ratio (P/FCF ratio)

Which Multiplicator Is Best? The best multiplicators to use for stock valuation will depend on the company being valued and the industry in which the company operates. Investors should carefully consider the company's unique characteristics when choosing which multiplicators to use. Conclusion Comparable/multiples valuation is a popular valuation method because it is simple, transparent, and fast. However, it is important to be aware of the limitations of this valuation method. Investors should use comparable/multiples valuation in conjunction with other valuation methods to get a more accurate valuation of a company.