Author Topic: Exit multiple  (Read 449 times)

fuzzhead1506

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Exit multiple
« on: April 13, 2019, 07:09:41 AM »
How do other people think about exit multiples? 

I have a pretty good rule of thumb that is particularly helpful for doing DCF on companies and believe it to be fair.  It is based on three beliefs I have about stocks: valuation is based on ROIC, interest rates, and holding period.  So as a rule of thumb, if interest rates at the end of my holding period are estimated to be 4% and a companyís operating marigins - through the cycle - are estimated to be 16%, then the EV/Revenues multiple at exit should be 4 (16%/4%).  If you donít hold the same beliefs as me, then the method fails to be useful to you.

This method helps tremendously for valuing big time growth stocks and give a better idea of how you might be looking at a value trap.


SharperDingaan

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Re: Exit multiple
« Reply #1 on: April 13, 2019, 09:01:48 AM »
There's a very old adage on Wall Street. Let the runners run ....

Everyone, and his dog, will have a different 'value'on that successful stock, and every success will have a thousand fathers pushing its virtues. While you have no idea how high your stock might go, you do have DAILY close information that you can trend against. When the stock starts to trend lower - sell. Until then, enjoy the ride.

SD


scorpioncapital

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Re: Exit multiple
« Reply #2 on: April 13, 2019, 09:13:28 AM »
the lower the better. low multiples often suggest some dying prospects or things going the wrong way.