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Lesson 5 of 7

Lesson 5 · 8 min

PEG, Price/Sales & Other Multiples

Beyond P/E — the faster screening ratios professionals use to filter stocks by valuation.

In this lesson you'll learn

PEG ratio — P/E adjusted for growth rate

Price/Sales — the key metric for pre-profit companies

Price/Book — asset-based valuation

EV/EBITDA and EV/FCF — enterprise-level comparisons

Why you need more than one multiple

Every valuation metric has blind spots. P/E ignores growth rate. Graham Number misses tech companies. DCF is too sensitive to assumptions. Professionals use a basket of metrics and look for stocks that appear cheap on multiple measures simultaneously.

Think of it like a medical diagnosis: one test result can be misleading; convergent evidence across several tests builds real conviction. This lesson adds four powerful tools to your valuation toolkit.

Each metric below has a formula, a benchmark range, and — critically — a note on what types of companies it applies to. Applying the wrong metric to the wrong company is a common beginner mistake.

The 5 key multiples at a glance

PEG RatioP/E ÷ Earnings Growth Rate (%)

Best for

Growth stocks where P/E alone is misleading

Benchmark

< 1 = potentially undervalued; > 2 = caution

A P/E of 40 at 40% growth = PEG 1.0 — not expensive. A P/E of 15 at 2% growth = PEG 7.5 — very expensive.

Price/Sales (P/S)Market Cap ÷ Annual Revenue

Best for

Pre-profit or early-stage companies with no earnings

Benchmark

< 1–3 = reasonable for most sectors; > 10 = growth premium

Low-margin businesses (grocers, airlines) should trade at lower P/S than high-margin SaaS businesses. Always compare within sector.

Price/Book (P/B)Stock Price ÷ Book Value Per Share

Best for

Banks, insurers, and asset-heavy businesses

Benchmark

< 1 = potentially undervalued; > 3 = premium quality or overvalued

Used in the Graham Number formula. Less useful for asset-light businesses with large intangible value (brands, software, IP).

EV/EBITDA(Market Cap + Debt − Cash) ÷ EBITDA

Best for

Comparing companies across different capital structures

Benchmark

< 10 = potentially cheap; 10–20 = fair; > 20 = growth premium

EV is 'enterprise value' — the total cost to buy the whole company including its debt. Preferred by M&A professionals and analysts for cross-company comparisons.

EV/FCF(Market Cap + Debt − Cash) ÷ Free Cash Flow

Best for

High-quality cash-generating businesses

Benchmark

< 20 = potentially attractive; > 40 = expensive

FCF doesn't lie — it's real cash generated, not accounting earnings. EV/FCF is often considered more reliable than EV/EBITDA because FCF reflects actual capital expenditure needs.

Choosing the right metric for the right company

Profitable mature company

P/E, EV/EBITDA, EV/FCF

Fast-growing profitable tech

PEG, EV/FCF, P/S

Pre-profit growth company

P/S (primary), EV/Revenue

Bank or insurer

P/B, P/E (sector-adjusted)

Value / deep-discount stock

P/B, P/E, Graham Number

M&A / buyout target

EV/EBITDA, EV/FCF

Quick Knowledge Check

3 questions · test what you've just learned

Company A has a P/E of 30 and expected earnings growth of 30%/yr. Company B has a P/E of 20 and expected growth of 5%/yr. Which has the lower PEG ratio?

Which metric is most useful for valuing an unprofitable high-growth tech company?

EV/EBITDA is preferred over P/E for comparing companies in the same industry because:

✓ Key takeaways from Lesson 5

PEG = P/E ÷ Growth Rate — adjusts for growth and is more useful than P/E alone for fast-growing companies.

Price/Sales is the primary metric for pre-profit companies where P/E is undefined.

EV/EBITDA removes the distortion of different capital structures — ideal for peer comparisons.

Match the metric to the business: use multiple measures and look for convergence across them.

Compare valuation multiples side by side on BriMindInvest

Use our Stock Comparison tool to view P/E, P/S, EV/EBITDA and more across two or more companies simultaneously — instantly.

Compare Stocks →Stock Analysis

← Lesson 4: The Graham Number Lesson 6: Margin of Safety →