Lesson 2 of 7
What drives each multiple
Median P/E runs from 10.61 in real estate to 32.66 in technology across 1,964 US companies. Growth, returns and risk, weighed differently by each multiple.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
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In one minute
- Only three things can move a multiple: how fast the cash grows, what return the capital earns, and what discount the risk deserves.
- Each multiple weighs them differently, so a sector can look expensive on one and ordinary on another.
- The exclusions matter as much as the numbers: some multiples are refused for whole classes of company rather than computed badly.
Sector medians are not a verdict on a sector. They are a measurement of where the three drivers sit, and the useful reading is which driver produced the gap.
Median price to earnings by sector
- Real Estate · 43 companies10.61x
- Financial Services · 476 companies14.27x
- Energy · 112 companies18.45x
- Utilities · 68 companies20.41x
- Healthcare · 188 companies26.49x
- Technology · 278 companies32.66x
Median, all US companies: 20.37x
Three drivers, weighed differently
| Multiple | What it is most sensitive to | What it ignores |
|---|---|---|
| Price to earnings | Growth and the required return | The balance sheet entirely |
| Price to book | The return on equity against the required return | Assets never capitalised, such as a built brand |
| Enterprise value to EBITDA | Growth, tax and capital intensity | Depreciation, so it flatters capital-hungry businesses |
| Price to sales | The margin the revenue will eventually carry | Whether the revenue is profitable at all |
The same sector therefore ranks differently depending on which one you pick. Technology carries the highest median earnings multiple at 32.66 and also the highest median price to book at 3.58, which is consistent: high returns on little book capital. Utilities carry a median P/E of 20.41 against a price to book of 1.88, which is the opposite shape, a regulated return on a large asset base.
The exclusions are part of the measurement
The three cohorts above are not the same companies, and the differences are deliberate.
Price to earnings excludes 153 companies as not applicable because they are equity REITs, whose reported earnings sit under a large depreciation charge that the cash distribution does not. Enterprise value to EBITDA excludes 620 as banks, capital markets firms, insurers or mortgage REITs, because a lender's borrowings are its raw material and adding them to a market value does not produce an enterprise value. Price to book excludes none, which is why its cohort is the largest at 3,300 companies.
A ratio refused for a class of company is a stronger statement than a ratio computed and quietly misread.
Where the drivers disagree with each other
The question to ask of any sector median
Not "is this sector expensive". The median is a cohort statistic, it is rebuilt on a cadence, and it says nothing about any company in it. The question is which of the three drivers the gap is coming from, because that is the part you can check in a filing: the growth in the ten-year record, the return on capital, and whether the risk in the risk factors is the kind a discount rate can price.
Check yourself
Which driver does price to book depend on most directly?
- The growth rate of revenue
- The return on equity against the return investors require
- The dividend payout ratio
Show the answer
Answer: B.
A book value is worth a premium only to the extent the equity earns more than the required return on it. That is the whole of the price to book driver.Why are 620 companies excluded from the enterprise value to EBITDA cohort?
- Their EBITDA is negative
- They are lenders and insurers, whose borrowings are raw material rather than financing
- They are too small to rank
Show the answer
Answer: B.
Adding a bank's deposits and borrowings to its market value does not describe the cost of buying the business, so the multiple is refused rather than computed.Technology carries the highest median P/E and the highest median price to book. What does that combination suggest?
- The two multiples contradict each other
- High returns earned on a small book capital base
- The sector has unusually high leverage
Show the answer
Answer: B.
A high price to book with a high earnings multiple is the signature of a business whose earning power is not represented by capitalised assets.Sources
- The product's public distribution endpoint: all-market and sector cohorts for price to earnings, price to book and enterprise value to EBITDA, built 2026-09-15.
- Damodaran, Investment Valuation: the fundamental driver behind each multiple, and why a multiple must be compared only against companies sharing that driver.
- Nareit's funds from operations white paper: why a REIT's reported earnings sit under a depreciation charge its distributions do not.
What this leaves out
- These cohorts were built on 2026-09-15 from prices last stored the same day, and are rebuilt on a cadence. A reader checking later will see different numbers.
- Values were clamped to the observed 1st and 99th percentiles before the breakpoints were computed, so extremes are pulled in rather than dropped.
- A sector median describes a cohort and says nothing about any company inside it.
- Nothing here is advice about any security.