Multiple Compression

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Dictionary Says

Definition of 'Multiple Compression'

The effect that arises when a stock trades at a certain multiple and, while earnings may be strong, the stock price doesn't move up (or even goes down). The result is that the given multiple (P/E ratio) is reduced even though nothing is fundamentally wrong with the company. Compression of a company's multiple can be interpreted as the valuation being called into question.
Investopedia Says

Investopedia explains 'Multiple Compression'

Remember, the multiple is based off of many factors, but most importantly the future expectations of a company. If a company trades at say, a P/E multiple of 50, this means investors are paying $50 for each $1 of earnings. Generally, an investor would only pay such a high multiple on the expectation that the company will grow significantly faster than its competitors or the stock market in general. When the company's growth rates start to slow, investors might start to doubt its growth prospects, and thus not pay an expensive a premium as they once did. In our case, the company might experience multiple compression with the P/E shrinking to 25, even though earnings haven't changed. With the same earnings of $1, this would mean that the stock price fell in half (25/50 = 1/2). This demonstrates how the stock price could go down when earnings stay the same.
Search results for

'Multiple Compression'

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    ... Shale production. This system consists of multiple compression stations,
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  • Bunge's Growth Continues

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    ... CF) may have a relatively high stock price, yet its forward multiple of around ... shifts
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  • Kraft Hopes Two Is Better Than One

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  • Canadian Natural Resources Still Working Natural Gas Assets In ...

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    ... The company believes that its extensive infrastructure base of pipelines, compression
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  • Bed Bath Must Go Beyond

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    ... gain, to $1.9 billion, as new-store growth offset a modest 0.6% compression in same ...
    which will be needed to justify a hefty forward P/E multiple (fiscal year ...

  • Intel – Pay Today To Grow Tomorrow

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    ... the year-ago quarter), leading to about a half-point of operating margin compression. ...
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  • Eaton – Well-Balanced, But Forever A Bridesmaid?

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  • Avago Still Advancing

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    ... on R&D and marketing - income climbed 5% sequentially on some modest margin compression. ...
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  • Is eBay A Trap?

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    ... is impressive in its own right - it offers interoperability with multiple financial
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