Enterprise Value metrics vs. Market Cap Metrics
Hey Guys and Gals, a question for you.
In my opinion EV/Revenue, EBITDA, and Net Income are fairly meaningless when looking at fundamental comps. The reason why is that I believe debt, cash and cash equivalents, etc. create noise within the metrics. For example, consider these fictitious comps in the picture attached (leaving out cash for simplicity's sake), where the only difference is the amount of debt. We can see that there is between .5x - 3.0x noise on comps, acknowledging cash and equivalents will close the gap a bit. Additionally, debt is a management decision and cash is management as well, where we are looking at market dynamics. Admittedly, management plays the most important role in the quality of an investment, but if you want to create apples-to-apple comparisons from market sentiment, and fundamental perspective, then Market Cap/Revenue, EBITDA, P/E, and Net Income are much more accurate and put everyone on the same level playing field.
Am I missing something? Or am I correct? Both right and wrong? Convince me I am wrong.
What are your favorite fundamental metrics and why?
Thanks for your thoughts in advance.
Regards,
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