Cramer’s Investing Club: Here’s a wrap up of this week’s tough market and what’s ahead

Cramer’s Investing Club: Here’s a wrap up of this week’s tough market and what’s ahead

Markets finished the week lower as investors attempted to "price in" (find an appropriate valuation level in the face of higher rates) the potential for as many as four interest rate hikes by year end. Last week, we discussed what this means for those investors utilizing discounted cash flow models — arguably the most diligent way to determine a company's intrinsic value — so this week, let's take a look at valuation multiples, which are also used to determine the "terminal value" in a discounted cash flow (DCF) model. In general investors looking more near- to- mid-term (6 to 18 months out) will look at a company's price to earnings multiple, the multiple being placed on a company's near-term earnings. For example, (AAPL) is expected to earn $5.76 per share this fiscal year — so at a price of $172, shares trade at just below 30x earnings. However, similar to reassessing the discount rate in a DCF model when rates rise, investors must also reassess valuation multiples. That's exactly what we saw play out this week, especially in the high fliers and particularly in the names that don't even have earnings and therefore trade on sales-based multiples. This is what