EV/EBITDA is Best Valuation Metric According to New Study


Analyzing Valuation Measures: A

Performance Horse-Race Over the Past 40 Years


Wesley R. Gray

Drexel University – LeBow College of Business; Empiritrage, LLC; TurnkeyAnalyst.com

Peter Lynch: How Investors Can Find Their Edge

Peter LynchPeter Lynch was one of the best growth investors of all time. As the Magellan Fund manager at Fidelity Investments between 1977 and 1990, he averaged a 29.2% annual return. Q1 2021 hedge fund letters, conferences and more The fund manager's investment strategy was straightforward. He wanted to find growth companies and sit on them Read More

Jack Vogel

Drexel University

November 10, 2011

We compare the investment performance of portfolios sorted on different valuation measures. EBITDA/TEV has historically been the best performing metric and outperforms many investor favorites such as price-to-earnings, free-cash-flow to total enterprise value, and book-to-market. We also explore the investment potential of long-term valuation ratios, which replace one-year earnings with an average of long-term earnings. In contrast to prior empirical work, we find that long-term ratios add little investment value over standard one-year valuation metrics. 

Number of Pages in PDF File: 18

Keywords: enterprise multiple, price to earnings, price to book, free cash flow, gross profits, valuation metrics

JEL Classifications: G10, G14

Working Paper Series

Date posted: December 13, 2011 ; Last revised: December 14, 2011

valuation metrics

H/T to http://www.crossingwallstreet.com/

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