Multiples and Their Valuation Accuracy in European Equity Markets

By Douglas A. McIntyre Published Jan 25, 4:15AM EST

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From World Beta Posted by Mebane Faber

I usually don’t dip my toes into fundamental discussions here on World Beta, but this is a great paper, and I would be amiss to not repost it. Kudos to CXO for finding it…

Multiples and Their Valuation Accuracy in European Equity Markets

Abstract: In spite of their prevalent usage, accounting-based market multiples are subject of surprisingly few academic studies. To close this gap, this paper examines the valuation accuracy of different (types of) multiples in European equity markets. We find that multiples generally approximate market values reasonably well. In terms of relative performance, the results show that: (1) equity value multiples outperform entity value multiples; (2) knowledge-related multiples outperform traditional multiples; and (3) forward-looking multiples, in particular the two-year forward-looking price to earnings (P/E) multiple, outperform trailing multiples. Our results are significant in magnitude, robust to the use of different performance measures, and constant over time. In an out-of-sample test using a U.S. dataset, we find similar results, which make our study directly relevant for practice.

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.