| multiple 1. In stock-index futures, the number multiplied by the futures price to determine the value of the contract. For example, the $500 multiple of the Standard & Poor's Midcap Index is multiplied by the futures price to determine the value of one contract. Thus, a futures price of $230 would yield a contract value of $115,000 ($500 × $230). 2. See price-earnings ratio. |
Multiple. A stock's multiple is its price-to-earnings ratio (P/E). It's figured by dividing the market price of the stock by the company's 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, since it may be impossible for the stock to meet the market's expectations.
What Does Multiple Mean?
A term that measures a particular aspect of a company's financial well-being, determined by dividing one metric by another metric. The metric in the numerator is typically larger than the one in the denominator, because the top metric usually is supposed to be many times larger than the bottom metric. It is calculated as follows:
Investopedia explains Multiple
As an example, the term “multiple” can be used to show how much investors are willing to pay per dollar of earnings, as computed by the P/E ratio. Suppose one is analyzing a stock with $2 of earnings per share (EPS) that is trading at $20; this stock has a P/E of 10. This means that investors are willing to pay a multiple of 10 times earnings for the stock.
Related Terms:
• Earnings
• Earnings per Share—EPS
• Forward Price to Earnings—Forward P/E
• Price-Earnings Ratio—P/E Ratio
• Price/Earnings to Growth Ratio—PEG Ratio
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