The Shortcut Method: Multiples & Comparables
Learn to value companies quickly by comparing them to similar businesses.
The Nike Paradox
In some years, Adidas has made MORE profit than Nike.
But Nike is worth roughly 5x more than Adidas.
How is that fair? And how did the market decide Nike should be worth so much more?
The Big Idea: Sometimes We Take Shortcuts
DCF is the "correct" way to value things. But it's also time-consuming and requires many assumptions.
So investors also use shortcuts called "multiples" — comparing companies to each other.
The logic: "If Nike trades at X times its profits, and Adidas is similar, Adidas should trade at roughly X times ITS profits."
The Three Multiples You Need
1. P/E Ratio (Price to Earnings)
What it means: How much investors pay for €1 of profit
Formula: Stock Price ÷ Earnings Per Share (or: Total Market Value ÷ Total Profit)
Example: Nike market cap: €140 billion. Nike annual profit: €5.5 billion. P/E = 140 ÷ 5.5 = 25x
"Investors pay €25 for every €1 Nike earns."
2. EV/Revenue (Enterprise Value to Revenue)
What it means: How much the whole company is worth relative to its sales
Why "Enterprise Value"? Because it includes debt. EV = Market Cap + Debt - Cash
Example: Roblox market cap: €25B, revenue: €3B. EV/Revenue = ~8x
3. EV/EBITDA
EBITDA: Earnings Before Interest, Taxes, Depreciation, and Amortization (basically: cash profit from operations)
Example: Discord valuation: €15B, estimated EBITDA: €50M. EV/EBITDA = 300x
That sounds insane — but growth companies often have crazy multiples because investors are betting on future profits.
"Compared to What?" — Finding Comparables
Multiples only make sense when comparing similar things.
Good Comparisons:
| Company A | Company B | Why Comparable |
|---|---|---|
| Nike | Adidas | Same industry, similar business model |
| Epic Games | Roblox | Gaming platforms, virtual economies |
| Netflix | Disney+ | Streaming subscriptions |
Bad Comparisons:
| Company A | Company B | Why NOT Comparable |
|---|---|---|
| Nike | Tesla | Completely different industries |
| Netflix | YouTube | Different models (subscription vs. ads) |
| Apple | Discord | Hardware vs. pure software |
Why Nike Is Worth 5x Adidas
| Metric | Nike | Adidas |
|---|---|---|
| Revenue | €50B | €22B |
| Profit | €5.5B | €1.8B |
| Market Cap | €140B | €28B |
| P/E Ratio | 25x | 15x |
Nike's P/E is 25x vs. Adidas's 15x. Why do investors pay more per euro of Nike profit?
- Higher margins: Nike keeps €0.11 of every €1. Adidas keeps €0.08.
- Stronger brand: The "Swoosh" is more recognizable globally.
- Better growth prospects: Investors believe Nike will grow faster.
- Direct-to-consumer shift: Nike sells more through its own stores/website.
Same industry, but Nike's QUALITY is higher. Higher quality = higher multiple.
When Multiples Lie
The Apples-to-Oranges Problem
Wrong: "Discord's P/E is 300x, so it's overvalued compared to Microsoft's 30x"
Why it's wrong: Discord is a fast-growing startup. Microsoft is a mature giant. Different stages = different multiples.
The Accounting Trick Problem
Wrong: "Company A has lower P/E than Company B, so it's cheaper"
Why it's dangerous: Company A might have inflated profits using accounting tricks.
Investment Dilemma: Prime vs. Red Bull
Prime is growing 10x faster, but Red Bull has 30+ years of brand history.
Should Prime trade at a HIGHER or LOWER multiple than Red Bull?
The Case for Higher:
- 100% growth is incredibly rare
- First-mover advantage in creator-founded beverages
- Younger demographic is the future
The Case for Lower:
- Unproven at scale — growing from €1B to €10B is much harder
- Celebrity brands often fade (Beats by Dre was the exception)
- No distribution moat — Red Bull owns its logistics
What matters most: A sky-high multiple for growth only makes sense if the growth actually continues.
AI Lab: Competitor Comparison
Prompt Template
Compare [Company A] vs [Company B] as investments. Include: 1. Key multiples (P/E, EV/Revenue, EV/EBITDA if available) 2. Growth rates (revenue and profit) 3. Qualitative factors (brand, competitive position, management) Which would you pick with a 10-year horizon? Explain your reasoning clearly.
Dinner Table Discussion
"Why do you think some brands can charge 10x more for basically the same product?"
Think: Nike vs. no-brand sneakers, iPhone vs. Android, Starbucks vs. gas station coffee. The answer reveals why high-quality companies earn higher multiples.
So What? The Investor Takeaway
Multiples are shortcuts that compare price to some measure of value.
When someone says "Nike trades at 25x earnings," you now know:
- Investors pay €25 for every €1 of profit
- This is higher than average (market is ~18-20x)
- Nike's quality (brand, margins, growth) justifies the premium
The key questions: What multiple is the company trading at? What do comparable companies trade at? Is the difference justified?
Discussion