market multiple
Definition
Investment analysis factor used to determine if a stock is appropriately priced when compared to its financial situation. It is usually calculated by dividing the stock price by the earnings per share for a particular period. For example, a stock price of $5 for a company earning $1 per share is said to be selling at a multiple of five (or five times earnings). Generally, the higher the market multiple is, the more optimistic the market is regarding the company's future.
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Taking Advantage of People’s Willingness to OverpayWe used to have a fairly rigid rule that as soon as something went above the market multiple we'd sell, but we thought we too often were leaving money on the table so we now use trailing stops. That m ... Read more
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