P/FCF vs. P/E
P/E uses accounting earnings; P/FCF uses the cash version. P/FCF is harder to manipulate and is the version most diligence packs cite. For asset-light software, P/FCF and P/E converge as net income approaches FCF; for industrials, the two diverge widely.
Sector benchmarks (2025-26)
| Sector | P/FCF range |
|---|---|
| Mature tech | 22-35x |
| High-growth SaaS | 35-80x |
| Consumer staples | 15-22x |
| Energy majors | 8-14x |
| Industrials | 15-25x |
Ranges derived from Damodaran sector datasets and EV/EBITDA pairings[Damodaran EV/EBITDA].
Where buybacks distort
A buyback shrinks the share count but also draws down cash. If buybacks are funded by debt, FCF is unchanged but market cap (the numerator) tends to rise as EPS lifts. Reading P/FCF without checking net debt leads to wrong conclusions.