Warranted Multiples Offer New Clues to Future Equity Performance
New research provides more evidence that price multiples based on accounting alone are misleading and gives us a new valuation tool.
By S.L. Mintz
Money managers could have a new item on their wish list if a valuation tool that is the subject of a new research paper lives up to its billing. The tool, known as warranted multiples, represents a new way of adjusting accounting ratios for fundamental drivers of risk, profitability and growth. Surely investors would welcome an additional tool to identify mispricing of assets based on conventional measures.
That is what authors Jiyoun An, Sanjeev Bhorjaj and David Ng of Cornell University have produced via their research paper, Warranted Multiples and Future Returns, which hones a methodology that merges accounting ratios and fundamental performance data.....