One firm has a 40% EBITDA margin at 8x EBITDA; another a 10% margin at 16x. What's the problem with comparing these directly?

• The 8x firm must be overvalued, since a business with a 40% margin should never trade below one earning only a 10% margin
• Margins are irrelevant to multiples, so the two can be compared on the headline numbers
• One must be a P/E rather than EV/EBITDA, since margins this different can't share a multiple
• The margins differ so much the multiples aren't comparable; the high-margin firm at 8x may be cheaper than the 16x firm
• Nothing is wrong; the 16x firm is clearly stronger, since a higher multiple signals higher business quality and better prospects