Share-based multiples include:
- Forward price/earnings (P/E) ratios, based on adjusted earnings
- Forward price/cash-earnings ratios
- price to net asset value (NAV) per share and dividend yields.
Enterprise-based valuation multiples include:
- Forward earnings before depreciation, interest, tax, depreciation or amortisation (EBITDA) ratios
- Forward operating cash-flow ratios
- enterprise value (EV)/sales ratios and
- EV/invested capital ratios.
In the case of average earnings multiples, cognisance is given to the stage of the relevant industry cycle, as it may not be appropriate to apply average multiples towards the peak or trough of a cycle. In such cases, earnings multiples prevailing at the corresponding stages of previous cycles may be used.
In the case of asset-based valuations, reported net assets generally provide a floor to a company’s valuation. In many cases, however, company accounts can understate the underlying economic value of a company’s assets, and a ratio such as return on invested capital to weighted average cost of capital (ROIC/WACC) may provide a more appropriate indicator of the book value multiple.
The ratings of similar companies may be taken into account in valuing shares, as indeed may average ratings for particular industry sectors.
Cash-flow based valuation
In discounted cash-flow (DCF) models a company’s forecast future free cash-flows are discounted by its weighted WACC.
Cantor Recommendation System
Cantor uses the terms “buy”, “neutral” and “sell”. The term “buy” means that the analyst expects the security to outperform the market by at least 10% over a twelve month period. The term “neutral” means that the analyst expects the security to inline with the market over the next twelve months. The term “sell” means that the security is expected to underperform the market over the next twelve months.