BlueMountain Investment Research explains what an EV/EBITDA multiple actually represents and why it is often misapplied in valuation. The paper argues that most investors overlook the embedded assumptions behind the multiple, and that companies trading above their justified levels tend to underperform, challenging how casually the metric is often used.
What Does an EV/EBITDA Multiple Mean?
BlueMountain
Michael Mauboussin, Andrew Feldstein
Research
19 Pages
Key Takeaways
Value Drivers Matter: A 1% increase in ROIC spread meaningfully lifts justified multiples, showing valuation depends more on returns versus cost of capital than headline EBITDA figures.
Growth And Risk Link: Firms with higher growth and lower risk can justify EV/EBITDA multiples several turns higher, with empirical spreads often exceeding 3–5x between top and bottom quartiles.
Mispricing Consequences: Stocks trading above warranted multiples historically underperform those below by several percentage points annually, reinforcing the risk of relying on naive multiple comparisons.
Join our newsletter to have all of this content + Exclusive Newsletter Bonus Content delivered to your inbox every week
