For public comps analysis, there are 2 categories of multiples to use from. Equity multiples & EV multiples.
- Under what circumstance should we use either of them?
- What are the differences between the 2? Eg. PE multiple vs EV/EBITDA multiple
Which Multiples to Use for Comps Analysis?
To build comps you could pull data from Capital IQ, Factset, etc., but it's important to get the numbers right. The best source is direct from the 10Q and other filings. Once you have the data, you'll need to scrub the comps by normalizing earnings and adjusting for different financial periods.
While there are the standard multiples - P/E, EV/Sales, EV/EBITDA, EV/EBIT, Price/BV, ROE, 5 year CAGR, PEG - you may need to focus on different multiples depending on the stage and industry of the company/industry. For example?
- If you are comparing firms with different capital structures, then using EBITDA or EBIT multiples can be helpful because you are analyzing the cash flow to all providers of capital
- If you are looking at companies with no earnings (ex: early tech), sales multiples can be helpful
- P/E multiples are widely used, however you can't really use this multiple for firms with negative earnings or widely divergent growth rates
The following posts provide great information on how to perform a comps analysis including which multiples to use:
To better understand the different multiples, you can check out: