Stock Valuation Using Price Multiples

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Apart from the dividend discount models, many analysts use price multiples for valuing the stocks. There are many reasons for using the price multiples. One, the DDM models can be very sensitive to the inputs such as the growth rate. Two, price multiples are very easy to calculate and can be quickly used for comparing stocks within a sector. Usually an analyst will compare the price multiple for a stock with a benchmark value based on an index or industry group.

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