Pricing vs. Valuation

Pricing and valuation are not synonyms. Pricing reflects the market's current willingness to pay, expressed through multiples — price-to-earnings, price-to-revenue, enterprise-value-to-EBITDA — that compress all of the market's expectations into a single ratio. Valuation reflects what a business is fundamentally worth, expressed through a discounted cash flow model that makes explicit assumptions about growth, margins, risk, and competitive position. The two can diverge for extended periods, and the direction of divergence depends on whether the market's narrative is more or less accurate than the underlying fundamentals. Damodaran's pedagogical insistence on the distinction is the most important practical tool he gives investors confronting events like the SaaSpocalypse, where multiple anchoring ("it used to trade at twelve times revenue") substitutes for the harder work of constructing a narrative-grounded intrinsic value estimate.