Morgan Stanley Investment Management - Mon, 08/12/2024 - 12:29

Valuation Multiples: What They Miss, Why They Differ, and the Link to Fundamentals

Most investors “price” the stocks of companies by using valuation multiples instead of “valuing” them based on future cash flows and fundamentals.
This report addresses what valuation multiples miss and why they have become less informative.
We examine how the two most popular multiples, P/E and EV/EBITDA, can provide different signals about a stock’s relative attractiveness.
We look at alternative measures of earnings and EBITDA and then take a deep look at the EV/EBITDA multiple.
We do not discourage the use of multiples, but we encourage those who use them to understand the underlying value drivers.

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Morgan Stanley

Morgan Stanley Investment Management’s Insurance Solutions team proudly supports our insurance clients with bespoke investment solutions and a comprehensive range of strategies that align well with insurers’ investment objectives and risk tolerances. We provide risk-based capital efficient solutions across public and private market strategies, and add value through thought leadership across insurance research, portfolio management, strategic asset allocation, reporting, risk management, and rating agency/regulatory considerations.

Joel Cramer, CFA
Managing Director, Head of North American Insurance Solutions
joel.cramer@morganstanley.com
Office: 312 706 4216
Mobile: 630 222 6765

www.morganstanley.com

1585 Broadway,
New York, NY 10036

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Valuation Multiples: What They Miss, Why They Differ, and the Link to Fundamentals

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Morgan Stanley

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