So while
the valuation multiples of the largest stocks have dropped by over 50 %,
the valuation multiples of the smallest stocks have more than doubled.
The green, orange, yellow, and red lines represent the projected total returns for the S&P 500 assuming terminal
valuation multiples of 20, 14 (average), 11 (median) and 7 times normalized earnings.
Intuitively,
a valuation multiple of half the historical norm has the opposite impact on subsequent returns as
a valuation multiple of twice the historical norm.]
Put another way, using the reciprocal of these numbers, growth has commanded anywhere from a lofty 12 times to a mere 3 times
the valuation multiple of value.
Those expectations are embedded in
the valuation multiple of the stock.
Not exact matches
While that's higher than peers such as Nikon and Canon, which have sales
multiples closer to 1, it's still quite low compared to the
valuations of other companies in the tech world.
The deal also reportedly boosts Vice's
valuation to $ 5.7 billion, according to
multiple reports, though the companies did not disclose the size
of TPG's minority stake in Vice.
When you purchase a broad swath
of equities, say an S&P 500 index fund, the returns you can expect over the next decade or so comprise four building blocks: the starting dividend yield, projected growth in real earnings per share, expected inflation, and the expected change in «
valuation» — that is, the expansion or contraction in the price / earnings (P / E)
multiple.
But as BMO Capital Markets analyst Tim Casey recently pointed out, the industry still appears to be on death row because
of the «gradual but unrelenting erosion
of revenues, operating margins and
valuation multiples.»
While
valuation for all companies depends on growth and momentum, a Software as a Service business such as Salesforce or Workday typically also takes into account customer churn percentage and
multiples of monthly recurring revenue (MRR).
Using those
multiples, you'd get a
valuation, on the high end,
of about $ 4.5 billion.
Exit Options: categories
of likely buyers, rationales, list
of specific likely buyers and comparables with
valuation multiples
Neither DraftKings nor Revolution would discuss
valuation, although
multiple sources say that the new round values DraftKings substantially lower than the approximately $ 2 billion post-money mark it received after raising capital in the summer
of 2015.
In other words, Tencent Music's apparent
valuation is already several
multiples of the whole Chinese music market.
Despite being the core drivers
of their businesses, they are left with a small percentage
of their companies due to
multiple financings at low, early stage
valuations.
E-commerce company Wish is raising around $ 250 million in new funding at a
valuation north
of $ 8 billion, Axios has learned from
multiple sources.
In late 2015, many public technology companies saw a significant retrenchment in their share prices primarily as a result
of a reduction in
valuation multiples.
Assuming Box's
multiple doesn't expand, Dropbox would need to grow its annual sales to ~ $ 1.4 B (or 226 % growth from 2014 revenue
of $ 400M) just to justify its private market
valuation of $ 10B.
The HFRI Relative Value (Total) Index is managed by maintaining positions in which the investment thesis is predicated on realization
of a
valuation discrepancy in the relationship between
multiple securities.
There will always be conceptual issues with any single
valuation measure, so the best we can do is evaluate
valuations from the standpoint
of multiple historically reliable approaches.
So when we include estimated foreign GVA, we don't get to just reduce current
valuation multiples by one - third and leave the
valuations of prior years unchanged.
Our models compare and contrast
multiple forecast scenarios so clients can assess the
valuation impact
of different forecasts for revenue growth, margins and capital allocation strategies.
Stocks can see their PE
multiples expand and contract in a manner that has almost nothing to do with changes in EPS, which makes looking at these metrics a poor indicator
of valuation or future returns.
«At 15x and 11x NTM EPS and FCF, the stock is trading near the upper - end
of its recent
valuation range and we believe it is tough to expect the
multiple to expand,» wrote Lamba
of Apple.
With an emphasis on small investments in capital efficient businesses with low entry
valuations and high ownership, small funds can produce attractive returns from more modest sub $ 110 million M&A exits and generate outsized returns from one or two «homerun» exits which can return
multiples of the fund's total committed capital.
While it's true that the market established even deeper
valuation troughs in 1974 and 1982 (near 7 times prior peak earnings, compared with the current
multiple of about 11), it is important to remember that long - term Treasury yields were 8 % in 1974, and 14 % in 1982, compared with about 4 % at present.
The
valuation is based on the average price - to - book value
multiple of three publicly traded peers: First Midwest Bancorp, MB Financial and UMB Financial.
It's important to emphasize that I don't view any
of these groups as «undervalued» - even the largest stocks are above historical norms
of valuation (with various individual exceptions), and even apparently «low» P / E
multiples should be evaluated critically since they're on record earnings.
Not only will this improve the value
of the business» earnings (and thus the SDE for
valuation) but it will demonstrate to buyers that the business can be monetized in
multiple channels.
While the first year's cashflows in a discounted cash flow
valuation carry the most weight in the calculation, years two through 20 and thereafter contribute many
multiples of year one's value in determining the present value» Bill Ackman
As you can see below, these forward
valuation multiples make the stock look attractive compared to the kind
of multiples it's traded at in recent years.
Specifically, shares
of Best Buy are now trading at a mid-teens
multiple while the EBITDA
valuation has gone from a trough
of four times to now seven times.
Part
of the reason why elevated
valuation multiples have not yielded to gravity may be that they are inadequate metrics for today's environment.
The current advance began at a
multiple of 16, so even from the beginning we had less room for
valuations to expand, compared with those unusually long bulls.
As usual, I don't place too much emphasis on this sort
of forecast, but to the extent that I make any comments at all about the outlook for 2006, the bottom line is this: 1) we can't rule out modest potential for stock appreciation, which would require the maintenance or expansion
of already high price / peak earnings
multiples; 2) we also should recognize an uncomfortably large potential for market losses, particularly given that the current bull market has now outlived the median and average bull, yet at higher
valuations than most bulls have achieved, a flat yield curve with rising interest rate pressures, an extended period
of internal divergence as measured by breadth and other market action, and complacency at best and excessive bullishness at worst, as measured by various sentiment indicators; 3) there is a moderate but still not compelling risk
of an oncoming recession, which would become more
of a factor if we observe a substantial widening
of credit spreads and weakness in the ISM Purchasing Managers Index in the months ahead, and; 4) there remains substantial potential for U.S. dollar weakness coupled with «unexpectedly» persistent inflation pressures, particularly if we do observe economic weakness.
HFRI Relative Value Index maintains positions in which the investment thesis is predicated on realization
of a
valuation discrepancy in the relationship between
multiple securities.
This one
of a kind program includes a distinguished speaker series,
multiple valuation case studies
of actual businesses and stocks purchased by Warren Buffett, and for the final exam, student presentations
of businesses they think would best fit into the Berkshire family
of businesses.
Now trading on a price to earnings
multiple of 16 times, Service Stream's
valuation is beginning to factor in plenty
of certainty at an uncertain time.
It is clear that the bulk
of the gains over the past few years have come from higher
valuation multiples.
Lower rates boost the value
of future earnings when discounted into today's dollars, supporting higher
valuation multiples.
A 6.8 x
multiple would imply a
valuation of about $ 8.50 / share when using my estimates for how MEG's capitalization will look post the BH Media transaction and accounting for BH Media's warrants.
A company capable
of boasting sustained gross profit margins that are materially higher than its peers is almost always more efficient, better run, and a safer long - term investment provided the
valuation multiple isn't too high.
In addition to liking BMC's products, we liked the company's aggressive share repurchases and its
valuation, which is much lower than the
multiple of sales at which many similar companies have been acquired.
From a fundamental perspective, however,
valuations have normalized, relative to both the index's history and
multiples of global peers.
- Applying a 3.5 x revenue
multiple to WU.com, which is a discount to Xoom's 4.8 x revenue takeover
multiple, and 15x EV / FCF to WU's remaining businesses (retail C2C, C2B, and B2B), which is a substantial discount to MoneyGram's 21x EV / FCF takeover
valuation, they derive an intrinsic value estimate
of ~ $ 33 per share for WU at the end
of 2020, offering ~ 72 % upside, or a 3.5 - year IRR
of ~ 20 % including the dividend (3.7 % current yield).
These periods are driven by generally rising
multiples of valuation as measured by the price / earnings ratio (P / E).
You can't make sense
of the numbers if the higher
multiples are giving lower
valuations.
If we assume that
valuations will remain where they are today,
multiples above prior historical averages, then the future rate
of that compounding is going to be reduced accordingly.
«The later stages
of the 2009 — 2017 bull market are a
valuation illusion built on share buyback alchemy... The technique optically reduces the price - to - earnings
multiple because the denominator doesn't adjust for the reduced share count... Share buybacks are a major contributor to the low volatility regime because a large price insensitive buyer is always ready to purchase the market on weakness... Share buybacks result in a lower volatility, lower liquidity, which in turn incentivizes more share buybacks, further incentivizing passive and systematic strategies that are short volatility in all their forms... Like a snake eating its own tail, the market can not rely on share buybacks indefinitely to nourish the illusion
of growth.
Based on 20 years
of global data and nearly 90 years
of US data, the energy sector has never been cheaper on price - to - book
multiples than it was at the end
of 2015.1 The skeptics» response to these compelling headline
valuations tends to be suspicion
of book values, which indeed are likely overstated in some instances and vulnerable to further impairment.