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On many of the HG boards, I see the term market multiple being used. In a recent post on the BWLD board:

http://boards.fool.com/Message.asp?mid=22191366

TMF1000 wrote this in his post:

“Another common theme might be stocks above the market multiple. SCSS and BWLD fit this category. If this tends to be the type companies you are investing in and they are mostly down you might look for those that have a market multiple or below market multiple to add to your portfolio”.

I understand multiples – P/E, P/Book, P/ROI – but I don't understand the context in which the term is being used here. Could someone explain?

Thanks
Keith
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Greetings Keith,

TMF1000 wrote this in his post:

“Another common theme might be stocks above the market multiple. SCSS and BWLD fit this category. If this tends to be the type companies you are investing in and they are mostly down you might look for those that have a market multiple or below market multiple to add to your portfolio”.

I understand multiples – P/E, P/Book, P/ROI – but I don't understand the context in which the term is being used here. Could someone explain?


I think the context is that if the companies you are investing in are down and tended to be above average in terms of a multiple, sometimes referred to as growth stocks, then you may want to consider some value stocks which would be those with lower multiples than the "norm".

By "norm" this is the market multiple which is the average of all the stocks in a sense.

If this doesn't explain it, could you refer to what doesn't make sense specifically? Basically, the way I read the quoted part is that some people will be highly valued stocks and if this tends to be what one buys then they want may to consider buying stocks on the other end of the spectrum in a sense.

HTH,
JB
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Hi JB

Specifically I was refering to the use of the term market multiple. I posted the whole sentence to try to capture the context in which the term was being used. To me, market multiple does not make any sense without a number and parameter attached to it, i.e. a P/E of 20. I was thinking that it was jargon for another term or idea. Other examples I have seen on the boards are.

"trading at a market multiple"

"in terms of a multiple"

Tom G has used these in several of his post.

Thanks for the help
Keith
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Greetings Keith,

I think it generally refers to the P/E of the overall market, e.g. that of the Dow Jones Wilshire 5000 index, though it could be a little more specific like that of that segment of the market, e.g. the P/E of S & P 500 stocks or tech stocks. At least that would be how I'd interpret it though I would ask the poster if they have a specific meaning they meant for someone to infer or if there are multiple interpretations that should make sense.

The main Price multiples I'm aware of are Price/Earnings, Price/Book Value, Price/Cash Flow, Price/Free Cash Flow though there may be others and there is the question of which market is meant since the term "market multiple" does raise the question of which market and which multiple though I imagine this is where you may be confused as well as others possibly.

Regards,
JB
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Thanks JB;

I will ask the poster what he meant. Like you, I was thinking he meant as compaired to the P/E of the overall market but I wasn't sure.

Cheers,
Keith
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