Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Micah Lance who wrote (57563)	7/18/2016 3:07:46 PM
From: Graham Osborn	Read Replies (1) \| Respond to of 78956

The biggest challenge with using FCF in the denominator on a comps analysis is that FCF can vary a lot from year to year and you really have to adjust it to get a realistic measure of sustainable free cash flow. EBITDA is not ideal either but is somewhat more stable. My personal favorite is EV/ Rev with an EBITDA margin/ gross margin/ (or) operating margin qualifier. But at least for the industries I know well EV/ EBITDA tends to be the standard for others are using. To see this, try graphing EV/ EBITDA for a couple different companies in an industry group in Ycharts - you will find the group tends to cluster tightly at any given time although the "center of gravity" will move based on market/ industry sentiment.