Here's an explanation of multiples from our syndicated newspaper feature (for more on the feature and how to get it in your paper: http://www.fool.com/Specials/1999/sp990409Newsprint.htm)SelenaQ. What do people mean when they refer to a stock's "multiple"? -- F. I., Tampa, Fla.A. Multiples are an important concept to understand, because they help you evaluate whether a stock might be undervalued or overvalued. In general, multiples simply compare a stock's current price to something, dividing the price by earnings (via a P/E ratio), revenues (via a price-to-sales ratio), or something else. Imagine a company trading at $36 per share. It's expected to earn $3 per share this year, so its P/E on this year's earnings is 12 (36 divided by 3 equals 12). You might refer to it as trading at an earnings multiple of 12. If you read analyses of various companies, you'll see references to price-to-sales multiples, book-value multiples, cash-flow multiples and more. It's instructive to compare a company's various multiples with those of its competitors, to see how each is priced relative to its peers.
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