Low Enterprise Multiple
TRADE-OFFValue companies using enterprise value relative to EBITDA, which incorporates debt and cash as well as equity price. Favor the lower enterprise-multiple firms.
| THE STRATEGY | $SPX BUY & HOLD | |
|---|---|---|
| Growth a year (CAGR) | 11.8% | 8.9% |
| Return per unit of risk (Sharpe) | 0.64 | 0.65 |
| Worst fall (max drawdown) | -65.1% | -52.6% |
// GROWTH OF $1, LOG SCALE
Tested on years it never saw (from the split): 12.5% a year against 12.4% for the benchmark; Sharpe 0.64 in the training years, 0.64 after.
After 25 bps of trading costs: 10.7% a year. EDGE OVER RANDOM
// DECADE BY DECADE
| ERA | STRATEGY | BENCHMARK |
|---|---|---|
| 1990s | 9.4% | 19.1% |
| 2000s | 11.9% | -2.6% |
| 2010s | 10.3% | 11.6% |
| 2020s | 16.7% | 14.1% |
// THE IDEA, AS PUBLISHED
Tim Loughran and Jay W. Wellman (2011), Journal of Financial and Quantitative Analysis · 2011
- EV = equity market value + debt + preferred stock - cash
- Divide by trailing EBITDA (positive values)
- Rank on EV/EBITDA; hold the lowest-multiple group, rebalance periodically
A real computation on the QuantGPT warehouse, survivorship-free, walk-forward. Gross returns, no costs except where stated. Past performance is not a promise. Findings, not advice. COMPUTED 2026-09-24 19:42 ON THE QUANTGPT WAREHOUSE: EVERY DELISTED NAME KEPT, FUNDAMENTALS AS FILED. NOT INVESTMENT ADVICE.