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What is a Multiple?

A multiple is a measure of a stock’s value, calculated by comparing one metric to another. The most common is the metric comparing a stock’s price to its earnings.

The most commonly used ‘multiple’ calculation is price to earnings, or P/E. This tells you the price of stock relative to its earnings per share. P/E’s are most useful when comparing stocks in the same industry or sector. For instance, a P/E of 25x may seem high to most, but it’s actually quite normal for stocks in the technology sector.

A very high P/E means that investors are willing to pay a premium for earnings, perhaps in anticipation that earnings will continue to rise. P/Es should also be looked at in a historical context, to establish whether a stock or an index is expensive on a relative basis.

Keywords: Earnings Per Share (EPS), P/E, multiple,