Valuation multiples are key financial metrics used by investors and analysts to determine whether a stock is fairly priced, overvalued, or undervalued compared to its peers or the overall market. They provide a quick snapshot of a company’s market value relative to its financial performance, helping in investment decision-making and comparative analysis.

In simple terms, a valuation multiple expresses how much investors are willing to pay for every unit of a company’s earnings, sales, or assets. The most commonly used multiples include the Price-to-Earnings (P/E) ratio, Price-to-Book (P/B) ratio, Enterprise Value-to-EBITDA (EV/EBITDA), and Price-to-Sales (P/S) ratio. Each multiple gives a different perspective on value — for example, the P/E ratio measures how a company’s earnings are valued by the market, while EV/EBITDA adjusts for debt and is preferred for comparing companies across sectors.

These multiples are especially useful when comparing companies within the same industry, as they help highlight how the market perceives future growth potential and profitability. A higher multiple may indicate strong growth expectations, while a lower one might suggest undervaluation or weaker performance. However, it’s crucial to interpret these figures in context — sector norms, market conditions, and company fundamentals all play a role.

Investors should use valuation multiples as part of a broader fundamental analysis rather than as standalone indicators. While they simplify comparison, they do not account for qualitative factors like management quality, competitive position, or economic cycles. Understanding the right multiple for the right sector ensures more accurate assessments and supports informed, compliant investment decisions in line with SEBI guidelines.