2.1·6 min read
Selecting Peers
Choose 5-10 companies that look like the target on the dimensions that drive value: industry, size, growth, and margins.
By the end you can
- ✓List peer-selection criteria
- ✓Explain why the comp set is the judgment call
The whole analysis lives or dies on the peer set. Start broad (the industry), then refine to companies that genuinely resemble the target.
- Industry / business model - same way of making money.
- Size - comparable revenue or market cap (a giant and a startup don't trade alike).
- Growth - similar growth profile; fast growers earn higher multiples.
- Profitability - similar margins and returns.
- Geography - similar markets and risk.
5 to 10, refined
Aim for roughly 5-10 names. Too few and one outlier dominates; too many and you've diluted 'comparable' into 'vaguely related'. Refining the set is where the analyst adds value.
Check yourself
Which is NOT a primary criterion for selecting comparable companies?