Discounted future cashflows. If you buy an asset and every year it produces $100 profit for you it's worth more than $100. You're buying the ability to produce profits in the future not the profits its produced in the past. Those profits belong to the shareholders who have cashed that out already (through dividends or reinvestment).
Earning multiples choose an arbitrary time length of 1 year.
What you're really trying to purchase is a machine that creates more money than it uses.
You need to guess at if that machine will do its job at an arbitrary point in the future, and how well it will do it. Those factors are only loosely correlated with current PE
No, that means that they're earning enough in one year to cover their entire valuation. You want something like 10:1 p/e which means that the next 10 years earnings are factored in to cover their present valuation.
Who's out here buying businesses for 1x the sales revenue volume? What a silly concept. If businesses could be so cheap, you'd just double down every single year until you owned every business on the planet.
