Valuation Expansion

Valuation expansion refers to the increase in a company’s valuation multiple, such as price-to-earnings (P/E) or Enterprise Value-to-EBITDA (EV/EBITDA), often due to improved market conditions or investor sentiment. For example, if a tech company’s P/E ratio rises from 15 to 20 due to strong growth prospects, this reflects valuation expansion. In cases like Netflix during its early growth phase, its valuation expanded as subscriber numbers surged, attracting higher investor confidence.