Forward vs Trailing Multiples
Which multiples are considered more important forward or trailing/ltm multiples? How should you use these/decipher between them to evaluate different investment decisions
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LTM generally useless for equity investing except to maybe give context for how different forward projections are. LTM also typically used for transaction multiples (although idk if this is still the case... see SpAC deals underwriting 2024 transaction multiples lol). Credit investors tend to underwrite debt investments on an LTM basis because at least that has been something that the company has proved they could do already vs some optimistic view of the future
So for equity investing, which multiple matters more when comparing NTM to forward Y2 vs Forward Y3 multiples or do multiples 2-3 years out really only matter for growth companies?
No science to it, depends on the industry. People look at current YE (2020) estimates and 1-2 years out but everyone underwrites investments differently. Some may do a DCF and say the current multiple is too low (lol rates are 0 so I guess all multiples are too low now on a DCF basis). I’d say stick to fiscal year 2020, 2021 multiples and have less of a focus on NTM vs LTM... maybe I’m wrong on that but you can’t get so fixated on these things
Half the time there’s no consensus that you can uniformly say is on X multiple on a forward looking basis. Generally it’s always on forward and you can always use your own projections to create said forward multiple view. Common in transactions to just do LTM as only thing to go by. Both NTM and LTM can be deceiving in their own ways.
When you hear people on TV talking in general what multiple a security is trading at are they referring to the NTM multiple? I understand now LTM is most commonly used for transactions
Depends. Normally it will just be next calendar year rather than NTM. Or this calendar year if the year has just started. But it can be anything. Different time horizon investors use different time horizons multiples.
From what I've seen, depending on the context, either one or both may be used.
I find it amusing that when a company does deal that they over pay for they tout the ntm ev/ebitda post synergy multiple to make the price paid sound better. Now that ntm will be lower for a lot of companies compared to ltm, starting to see a shift to trailing multiples being used more often.
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