| Multiple
Compression |
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Arises when a stock trades at a certain multiple and while earnings
may be good, the stock price doesn't move or sometimes goes down.
The result is that the multiple is reduced even though fundamentally
nothing is wrong with the company. The valuation has been called into
question and the multiple with which you are willing to pay for that
stock is the only thing different.
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This
typically happens in a rising interest rate environment when you look
at the present value of cash flows and all kinds of valuation metrics,
and people just award a lower P/Es to companies. |
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