Valuation Ratios & Multiples
Is the stock cheap or expensive?
Valuation multiples compare a company's market price to a fundamental figure - earnings, book value, sales, or enterprise value - so investors can judge how much they are paying for each dollar of business. They are most useful in context: against a company's own history, its peers, and the broader market. No single multiple is definitive, which is why analysts weigh several together.
Put these metrics to work
Screen stocks by valuation15 terms in this topic
Price to earnings ratio (P/E)
A valuation ratio comparing a company's current share price to its earnings per share, indicating how much investors are willing to pay per dollar of earnings.
Price to book ratio (P/B)
A valuation ratio comparing a company's market value to its book value, calculated as market price per share divided by book value per share.
Price to sales ratio (P/S)
A valuation ratio comparing a company's stock price to its revenues, calculated as market capitalization divided by total sales or revenue.
PEG ratio
Price/Earnings to Growth ratio, which adjusts the P/E ratio by the earnings growth rate to provide a more complete valuation picture.
EV/EBIT ratio
A valuation multiple comparing enterprise value to earnings before interest and taxes, used to evaluate companies with different capital structures.
EV/EBITDA ratio
A valuation ratio comparing enterprise value to earnings before interest, taxes, depreciation, and amortization, commonly used for company comparisons and M&A.
EV/sales ratio
A valuation multiple comparing enterprise value to total revenue, useful for valuing companies with negative earnings or in early growth stages.
Enterprise value
A comprehensive measure of a company's total value, calculated as market cap plus debt, minority interest, and preferred shares, minus cash and cash equivalents.
Market capitalization
The total market value of a company's outstanding shares, calculated as current share price multiplied by total shares outstanding.
Buffett Indicator
A market valuation metric comparing total stock market capitalization to GDP, used by Warren Buffett to gauge whether the overall market is overvalued or undervalued.
Earnings yield
The inverse of the P/E ratio, calculated as earnings per share divided by share price, showing the earnings return on each dollar invested in the stock.
Free cash flow yield
A valuation ratio comparing free cash flow to market value, calculated as free cash flow divided by market capitalization, expressed as a percentage.
Price to free cash flow ratio (P/FCF)
A valuation ratio comparing a company's market capitalization to its free cash flow, showing how much investors pay per dollar of free cash flow.
Graham number
Benjamin Graham's estimate of the maximum fair price for a defensive stock, calculated as the square root of 22.5 times EPS times book value per share.
Peter Lynch fair value
A valuation estimate based on Peter Lynch's rule that a fairly priced stock's P/E ratio equals its earnings growth rate.