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Why would two identical companies in the same sector be trading at different valuation multiples?

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Why would two identical companies in the same sector be trading at different valuation multiples?


The most important reason why two companies are trading at different PE ratios or EV/EBIT multiples is because of the underlying growth in profitability. Investors are willing to pay a higher multiple for the same dollar of earnings for a company with a higher growth in profits versus another company in the same sector.


Other less important reasons of why multiples differ is because of sustainability in earnings, unsystematic risk profile of the company and potential acquisition premium to list a few.




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