EV/EBITDA Multiples by industry
Hi guys,
I bumped into this table from Damodaran:
https://pages.stern.nyu.edu/~adamodar/New_Home_Pa… about EV/EBITDA multiple. The way I see it, a sector should trade at higher multiples because of its growth prospects, investor sentiment and safety. Then, I don't understand why Retail (groceries and food) trades so low, steel is one of the lowest, while tobacco (is it really a growing/safe industry??) trades higher. Also aerospace and chemical give me some doubts. Those are just examples, what I am looking for is a rule of thumb to answer questions like "Which company is likely to trade at higher multiples, company in sector x or y?". Any clarification would be much appreciated!
Your initial read is right about what should cause a company to trade at a higher multiple. But retail is a really troubled sector right now which is what’s causing the issues there. Can’t really comment on the other sectors
For retail, the underlying is good but there are so many brands trending and failing the next day that it is quite unstable. Being more specific, brands targeting teens and female are the most cycling while brands for 40+ yo tend to be a safer investment even if they can get outdated. That's why historical luxury brands do not answer to the same multiples at all. Great sector for hands-on PE funds with good market knowledge.
(edit: mb I'm off-topic thought you were talking about consumer & retail in general, still kinda true)
Aero is often linked to defense and (sorry Greta) it is here to stay for at least some decades. There are a lot of rather small but key actors manufacturing specialty pieces with great pricing power.
Less familiar with the other sectors quoted but keep in mind that some valuation are what they are because that's how the market valued them before and it takes time to change that
You don’t understand why tobacco is a safe industry??
bro??
nice contribution!
Couldn't it be affected if legislation and laws change around it? I see why it's can be perceived as a safe industry considering the products are addictive, but I think there's still some risk to it.
There are a host of reasons and considerations, but here are a few:
Public markets value growth more than anything but there are a few points to be made. Retail has traditionally been a tough place to be for investors. Grocers operate in low margin low growth and high competition environment and the sector is very sensitive to inflation / economic cycle overall. Sector is very diverse and there are pockets of higher valuations (e.g., specialty, discounters, luxury etc) due to different competition and growth dynamics. Tobacco (combastibles) is very sticky but low growth hence big players are now focusing on non-combastibles where there's more growth upside and investors can ascribe higher valuations.
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