Why do we need “comps” when valuing public companies? Don’t they trade and have their own multiples?
I don’t know why we have to use ratios of other companies to value public companies when public companies have their own market metrics
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Comps are used to compare valuations among companies. You can't just compare two companies' stock prices and really come to a good conclusion on valuation. For example, a comparable companies analysis may look at the EV/EBITDA multiples of a company's publicly traded peers and compare itself to the average or median. Some conclusion can then be made as to why the company being valued is trading at a higher or lower valuation than its peers. These same multiples can also be looked at and used for valuing private companies.
Public Comps (Originally Posted: 05/18/2018)
Let's say that you are assessing certain M&A deal that took place in the past lets say October 2016. You would like to assess the fairness of the purchase price. How would you perform the Comparable Companies Analysis, especially which multiples would you use? For example I assume we should use LTM EV/EBITDA as of October 2016 but what about the forward periods in this case? Should you use EV as of October 16 and then the actual LTM EBITDA as of October 2017? Or, perhaps forward periods don't make sense in this case?
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