§ Valuation ratios
Multiple compression
Glossary version 2026-07-12.v1 · reviewed July 12, 2026
A decline in the valuation multiple investors pay for earnings, sales, or cash flow. The share price can fall even while the underlying business continues to grow.
Multiple compression occurs when investors apply a lower valuation ratio to the same financial output. Higher discount rates, slower expected growth, weaker competitive quality, or rising risk can all cause it. Bear-case prose should connect the reason for compression to the affected earnings or cash-flow path instead of using a lower multiple as an unexplained plug.