Share price rises can be driven by two factors – one is an increase in earnings and the other is multiple expansion.
Share price rises can be driven by two factors – one is an increase in earnings and the other is multiple expansion.
This is where investors mark-up a share in the expectation of future earnings growth rather than on the basis of actual earnings growth. The reverse can also happen. When investors get nervous they may mark down a share, which creates price earnings multiple contraction, even in the face of decent earnings growth.