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The same multiple can reflect completely different risk between a stable giant and a small company early in its journey.
Small companies tend to be less diversified (dependent on a single product or market), have lower trading liquidity, and face harder access to financing during a crisis — all of which justify a lower 'normal' multiple relative to a large company with the exact same growth rate.
On the other hand, a small company has relatively more 'room to grow' — doubling revenue from a small base is significantly easier than doubling revenue for a giant. That's why small growth companies sometimes trade at very high multiples despite the higher risk.
Comparing a small company's multiple to a stable giant's multiple in the same industry, without accounting for the difference in risk and liquidity, is a common mistake — the right comparison is against similar small companies, not against the giants in the field.
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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.