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By Javier de Berenguer, analyst and fund selector at MAPFRE Inversion.
What the valuation metrics tell us…
Valuation multiples serve as a guide for the investment community to relate the amount of profit generated by a market or a specific company to its price. These ratios are very useful because they allow us to compare the market value of these companies not only over different periods of time, but also among the companies within the same industry sector.
So far, so good, but on their own, they are not a cure-all; it is important to know when to use them and how to interpret them.
Not all valuation multiples are a valid reference for every sector. Industries with higher growth potential often dedicate most of their capital to financing that growth, resulting in low profits (making the Price/Earnings (P/E) ratio invalid). In such cases, it is more appropriate to use multiples based on sales volume (e.g., Price/Sales). On the other hand, for more stable companies with mature businesses, the P/E ratio can be a good reference for valuing these companies. Similarly, for businesses with significant tangible book value-such as listed financial services or real estate-the P/E and P/B ratios are reliable benchmarks.
Once this is understood, let's put the American market into numbers, which is currently the main focus of concern re...................... To view our full article Click here
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