Definition
Valuation spread measures the gap between expensive and cheap stocks, often comparing growth vs. value stocks, large vs. small caps, or sectors. Wide spreads may indicate opportunities in undervalued segments, while narrow spreads suggest less differentiation.
Formula
Spread = High Multiple Group Average - Low Multiple Group Average
Example
If growth stocks trade at 30x P/E while value stocks trade at 12x, the valuation spread is 18x. Historically wide spreads often precede value outperformance.
FAQ
What is Valuation Spread?
The difference in valuation multiples between different groups of stocks.
How do you calculate Valuation Spread?
A common formula for Valuation Spread is: Spread = High Multiple Group Average - Low Multiple Group Average
Why is Valuation Spread important?
Valuation Spread helps investors evaluate valuation and make more informed decisions.