“This stock trades at 15x earnings.”
*“That company’s at a 10x EV/EBITDA—seems cheap.”*

But what do these numbers really tell you? And more critically: What do they hide?
Let’s cut through the jargon.

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I. Multiples Demystified

A multiple is a ratio comparing a company’s market value to a financial metric. Example: A P/E of 15x means investors pay $15 for every $1 of earnings.
Why they matter: They standardize valuations for quick comparisons.

II. Key Multiples Decoded

Four multiples dominate investing conversations:

• P/E (Price-to-Earnings) tells you how much investors pay for each dollar of net profit. It’s useful for stable, profitable companies but collapses when earnings vanish.
• EV/EBITDA reveals a company’s value relative to its core cash flow (ignoring debt and taxes). It’s ideal for capital-heavy businesses like airlines or factories.
• EV/Sales measures value per dollar of revenue—a lifeline for startups or low-margin firms where profits don’t yet exist.
• P/B (Price-to-Book) compares price to net asset value. It’s the gold standard for banks or insurers, where balance sheets dictate value.

The silent insight? No single multiple tells the whole story. P/E ignores debt. EV/Sales ignores profitability. Each is a flashlight in a dark room—illuminating one corner while leaving others in shadow.

III. How to Read Between the Lines

A high multiple signals market optimism: expectations of rapid growth, rising margins, or low risk. A low multiple whispers skepticism: fears of stagnation, decline, or hidden dangers.

But here’s where investors stumble:
Multiples reflect market expectations, not intrinsic value. A 30x P/E isn’t automatically “overpriced”—it could signal a future superstar growing at 50% annually. Conversely, a 5x P/E isn’t always a “bargain”—it might hide a dying business. The number alone explains nothing.

IV. What Multiples Don’t Tell You

Multiples are powerful, yet dangerously myopic. They ignore:

• Debt risk (a low P/E company drowning in leverage),
• Growth quality (revenue surging from unsustainable price cuts),
• One-time events (a lawsuit crushing earnings),
• Management or strategy shifts (a visionary CEO or broken business model),
• Industry cycles (a low P/E during a temporary downturn).

“Multiples mirror market sentiment—not fundamental truth.“

V. The FinGrow Test: Identical Multiple, Opposite Truth

Consider FinGrow Ltd., trading at a P/E of 20x:

• Scenario A: Earnings grow at 5% yearly. Here, 20x is expensive—the market overpays for sluggish growth.
• Scenario B: Earnings surge 25% yearly. Now, 20x is a bargain—growth justifies the premium.

“Identical multiples, opposite valuations. Context dictates everything.“

VI. When to Trust Multiples (And When Not To)

Multiples work when comparing true peers—like two Swedish IT firms—and when you dissect why the multiple exists (e.g., high EV/Sales for a scalable SaaS business). They fail when valuing unique companies, turnarounds, or when used alone.

The golden rule: Pair multiples with deeper analysis. Ask: “What story is this ratio hiding?” Cross-check with cash flows, competitive moats, and management quality.

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The Bottom Line

Multiples simplify valuation but seduce lazy investors. They answer “How expensive?” but never “Why?” or “What’s next?”

“Price is what you pay. Value is what you get.”
— Warren Buffett

Your mission isn’t to calculate multiples—it’s to see beyond them.