What is the expected trend for the EV/NTM EBITDA multiple if a company is currently valued at 10x EV/LTM EBITDA?

When analyzing the expected trend for the EV/NTM EBITDA multiple in relation to a company currently valued at 10x EV/LTM EBITDA, it is essential to consider the distinctions between trailing (LTM) metrics and forward-looking (NTM) metrics.

If a company is valued at 10x EV/LTM EBITDA, it suggests a certain level of historical earnings being used to determine that valuation. Moving to a forward-looking measure like NTM EBITDA incorporates projections about future performance rather than just past performance. Typically, investors may expect that NTM EBITDA will reflect growth in earnings potential, and often, when transitions are made from LTM to NTM measures, the expectation is that the future earnings will be either stable or exhibit growth.

However, if the current valuation is at a level that could be considered high compared to industry peers or historical averages, or if the market sentiment surrounding the company is bearish regarding future prospects, the NTM EBITDA multiple might adjust downward. This could be due to anticipated challenges in achieving projected growth, or other market conditions that are driving broader multiples down. Therefore, if the market is recalibrating expectations, it is plausible that the multiple will fall.

This reasoning leads to the conclusion that, particularly under circumstances where challenges