A company trades at 20x NTM EBITDA but its growth is decelerating. How do you think about whether this multiple is justified?

Question

IBPrep · Accepted Answer

Justify the multiple by analyzing: (1) PEG ratio, divide P/E or EV/EBITDA by the growth rate; high multiples should be supported by high growth; (2) Margin expansion, is the EBITDA margin still growing? (3) Competitive moat, pricing power, switching costs; (4) Comparable company context, what do peers with similar growth profiles trade at?

A company trades at 20x NTM EBITDA but its growth is decelerating. How do you think about whether this multiple is justified?

Answer

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