Re-rating

A re-rating is a shift in the multiple, the P/E, EV/EBITDA, or other valuation ratio, investors are willing to pay for a company or a whole sector, independent of any change in the company's own earnings or growth. A re-rating higher means the market is paying more for the same dollar of profit than it used to. A re-rating lower, sometimes called a de-rating, means the opposite.

Re-rating usually comes from something broader than one company: falling interest rates, a wave of enthusiasm for an industry, or a shift in how investors weigh growth against risk can lift or compress multiples across an entire sector at once, even for companies whose own numbers haven't changed at all.

This matters when reading why a stock's ratio sits above or below where it used to trade. A higher multiple can mean the business itself got better, or it can mean the market simply became more willing to pay up for that kind of business in general. Telling the two apart usually means checking whether peers and the broader sector re-rated the same way, since a move that shows up everywhere points to the market, and a move that shows up in one company alone points to the business.