A stock's multiple is its price-to-earnings ratio (P/E). It's figured by dividing the market price of the stock by its earnings.
The earnings could be the actual earnings for the past four quarters, called a trailing P/E. Or, they might be the actual figures for the past two quarters plus an analyst's projection for the next two, called a forward P/E.
Investors use the multiple as a way to assess whether the price they are paying for the stock is justified by its earnings potential. The higher the multiple they are willing to accept, the higher their expectations for the stock.
However, some investors reject stocks with higher multiples, it's almost impossible for the stock to meet the market's expectations.
- Browse Related Terms: Alpha, Book value, Dividend yield, Earnings estimate, Earnings momentum, Earnings surprise, Forward price-to-earnings ratio, Multiple, Outstanding shares, Price-to-book ratio, Price-to-earnings ratio (P/E), Price-to-sales ratio, Quarter, risk ratio, Special situation, Undervaluation, valuation, Value stock, Whisper number, Zacks Investment Research
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