NOTE29 days ago6.9Kviews

What a market multiple assumes that nobody writes down

Quoting a multiple without stating its implied inputs hides the actual assumption being made.

This is not a timing argument. Multiples can hold implausible inputs for years. It is an argument about what the forward return distribution looks like from here, which is narrower and lower than the trailing experience. Neither is impossible on its own. Both simultaneously is the part worth flagging, because the usual defence of one implicitly assumes the other is conservative. Invert the multiple and it resolves to a required return given a growth assumption. At current levels the implied combination is either a terminal growth rate above the long-run nominal economy or an equity risk premium near historic lows.

Discussion · 7

Noa BergmanAUG 16

Respectfully, I think this overstates it. The regulatory ceiling being quantified changes the model, not just the headline. Is there a cleaner way to express this than the equity?

Sam WhitfieldAUG 14

This is the clearest write-up I have seen on the name. The regulatory ceiling being quantified changes the model, not just the headline. How much of this do you think is already in the buy side's numbers?

Omri ShakedAUG 15

I hold the other side of this. The lag between intake and revisions is the whole trade. What would you need to see to add rather than hold?

Marco BianchiAUG 14

This changed my mind. I had not appreciated how much of this is already in consensus. What does the bear actually have to be right about?

Maren VosAuthorAUG 14

Good question. The comp table took longer than the rest of the piece put together, so I am glad it was the useful part.

Sam WhitfieldAUG 14

Reading this against my own model. The point about conversion rather than demand is the right one. What would you need to see to add rather than hold?

Maren VosAuthorAUG 14

Partly yes. The bear has to be right that the channel clears without a guide-down. That is possible and it is not what the sell-through says.