Valuing by Comparison

Comparable company analysis prices a business off the multiples its peers trade at, on the logic that similar companies should trade similarly.

By the end you can

✓Explain the logic of relative valuation
✓Contrast comps with a DCF

Comparable company analysis (comps)

A relative-valuation method that values a company by applying the trading multiples of similar public companies to its own financials. Also called 'trading comps'.

The premise is simple: if similar businesses trade at, say, 10x EBITDA, your company is probably worth somewhere near 10x its EBITDA too. Comps tell you what the market is actually paying right now - a useful reality check on a DCF's intrinsic value.

Comps (relative)

›Based on peer market prices
›Fast, market-grounded
›Reflects current sentiment

DCF (intrinsic)

›Based on the company's own cash flows
›Independent of the market
›Sensitive to your assumptions

Check yourself

Comparable company analysis values a business based on:

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When Comps Shine (and Fail)