Revisiting Valuation Extremes – 2008 to Now

Last week we took a look at how much price to book multiples have expanded since 2008. Today, we are undergoing the same exercise but this time we are looking at price to cash flow multiples.

Using 150 industries from the MSCI World Index, the average price to cash flow ratio at the end of 2008 was 9.4x. As of the end of May, the average price to cash flow ratio was 14.3x or an approximately 52% increase since 2008. This is just slightly more than the 48% increase we observed when using price to book value.

The median price to cash flow at the end of 2008 was 7.7x and at the end of May the median value as 13.3. Therefore, the median price to cash flow valuation expanded by 73%, quite a bit more than the average valuation.

131 industries have had an expansion in multiples while only 19 have seen their multiples contract. The average percentage change since 2008 is 90% and the median percentage change is 74%.

Agricultural products multiples have expanded by an astounding 1079% over the past six and half years. Multiples in this industry started at 2.6x in 2008 and are now over 30x. There are 12 industries that have seen their multiples expand by at least 200%.

On the flip side, mortgage reits, unsurprisingly, have had the greatest contraction in multiples going from 9.1x to 1.7x. Specialized consumer services is right on their heels with a contraction in multiples of 80%. There are six industries that have had their multiples contract by at least 50%.

The full list of 150 industries is below.

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