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Valuation Overview
Valuation metrics are shortcuts. They help you compare companies, but only in context.
P/E (Price-to-Earnings)
Best for companies with stable earnings.
Watch out for:
- One-time gains/losses
- Cyclical earnings peaks
P/S (Price-to-Sales)
Useful for unprofitable or early-stage companies.
Watch out for:
- Thin margins (sales don’t equal profits)
- Heavy dilution
EV/EBITDA
Helpful when capital structure differs across peers.
Watch out for:
- EBITDA ignoring capex and working capital
Quick Rules of Thumb
- Compare within the same industry
- Always check margins and growth
- Use more than one metric
Summary
Valuation ratios are tools, not answers. Pair them with business quality and financial statement trends.