Enterprise value divided by trailing or forward revenue — the primary valuation multiple for high-growth companies without meaningful profits.
Deeper Explanation
For businesses reinvesting heavily in growth, EV/Revenue replaces P/E as the valuation anchor because earnings may be minimal or negative. A business trading at 10x forward revenue is being priced for substantial growth and eventual profitability. The appropriate multiple depends on revenue growth rate, gross margin, and business model quality: a 50% revenue growth business with 80% gross margins deserves a higher multiple than a 20% growth business with 30% gross margins. EV/Revenue multiples compress sharply when interest rates rise (because the value of distant future profits falls) — which is why high-multiple growth stocks are particularly sensitive to the rate environment.
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