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A multiple of 20 in banking and a multiple of 20 in software are two completely different pricing realities — the reason lies in each sector's typical capital structure and growth.
Banks operate with high leverage by nature — it's part of the business model — so a 'reasonable' P/E for them is relatively low compared to other sectors, because the inherent risk is structurally higher. A software company with a clean balance sheet (no debt, plenty of cash) can carry a higher multiple on the same level of earnings, because the financial risk is lower.
Mature sectors (infrastructure, basic commodities) tend to grow slowly and steadily — the market doesn't price in dramatic growth, so a normal multiple is relatively low. Younger, tech-driven sectors can grow much faster — a higher multiple doesn't necessarily mean 'expensive,' it may simply reflect a fundamentally different growth expectation.
Never compare a company's multiple to some 'round' number in a vacuum. The only meaningful comparison is against its own sector's median/average, and against the company's own historical multiple — not against an arbitrary number.
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This research is intended for general educational purposes only, does not constitute investment advice, and is not a prediction. Full details on the disclaimer page.