10 Questions to ask what multiples to pay for a stock

Good pointers to think while paying a top dollar valuation for an investment:

  1. Does the business have a sustainable competitive advantage (Buffett’s moat)?

  2. Does the business benefit from any network effects?

  3. Are the business’s revenue and earnings visible and predictable?

  4. Are customers locked in? Are there high switching costs?

  5. Are gross margins high?

  6. Is marginal profitability expected to increase or decline?

  7. Is a material part of sales concentrated in a few powerful customers?

  8. Is the business dependent on one or more major partners?

  9. Is the business growing organically or is heavy marketing spending required for growth?

  10. How fast and how much is the business expected to grow?

Source: Greg Speicher


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