Equity Multiples: Myths, Mania and Alchemy
A valuation riddle … wrapped in a mean reversion mystery … inside an accounting enigma
Key Takeaways:
Multiples such as Price Earnings Ratios have no theoretical foundations and economic value meaning.
However, they are often preferred over the more robust and explicit Discounted Cash Flow (DCF) methodology, which is the gold standard of valuation.
Simon Nocera posits in this paper that they are best treated as momentum indicators and barometers of market sentiment rather than serious fundamental value metrics.
Explore Simon Nocera’s paper here.
Watch Simon explaining the 4 pillars of fundamental investing in R4A below and please find our entire video series here:
