FIGURE 7.2 Distribution of a Multiple versus Normal
Distribution
Theconsequencesofasymmetric distributionsforinvestors
and analysts are significant:
- Average versus median values. As a result of the
positively skewed distributions, theaverage values
for multiples will be higher than median values.
3 Forinstance,themedianP/EratioinJanuary 2005
was23,wellbelowtheaverageP/Eof 48 reportedin
Table 7.1, and this is true for all multiples. The
median value is much more representative of the
typical firm in the group, and any comparisons
shouldbemadetomedians.Thestandardsalespitch
ofastockbeingcheapbecauseittradesatamultiple
lessthantheaverageforthesectorshouldberetired