Bill Nygren: What Determines The Multiple You Should Pay

Johnny HopkinsBill NygrenLeave a Comment

In his latest interview on the Natixis Access Series, Bill Nygren discussed what determines the multiple you should pay. Here’s an excerpt from the interview:

Nygren: Our view is that the quality of the business is what determines what a fair multiple would be for that business. We would gladly pay higher multiples to get businesses that have higher expected growth, higher durability of their growth, higher predictability of the growth, higher cash generation, all those attributes we normally associate with high-quality businesses.

To us, it’s just as much value investing to buy a great business at an average multiple, as it is to buy an average business at a cheap multiple. Value investing is buying businesses that are worth more than you have to pay for them. So it’s part of our process, and we absolutely do not limit ourselves to below average businesses like some deep value investors do.

We avoid parts of the market where speculation runs rampant. I would say that’s in some of the cryptocurrencies and some of the SPAC names, especially the ones run by celebrities. I think the meme stocks – like GameStop – that appear to be selling at multiples of very low fundamental value are extremely risky and not sustainable.

You can watch the entire interview here:

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