Definition
Comps analysis values a company by comparing its financial metrics to those of similar publicly traded firms. Key multiples include EV/EBITDA, P/E, EV/Revenue, and P/B. The challenge lies in selecting truly comparable peers—they should have similar size, growth, margins, risk, and business models. Comps provide a market-based sanity check for other valuation approaches.
lightbulb Example
Valuing a SaaS company: five comparable public SaaS firms trade at 8-12x EV/Revenue with a median of 10x. Target has $50M revenue, implying EV of ~$500M. Adjustments made for faster growth rate (+2x) bring implied EV to $600M.
verified_user Key Points
- Most common relative valuation technique
- Relies on selecting appropriate peer group
- Multiple choice depends on industry and lifecycle
- Provides market-based reality check for DCF