Why do we need “comps” when valuing public companies? Don’t they trade and have their own multiples?

DCF_king's picture
Rank: Orangutan | 266

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

Comments (3)

Mar 19, 2018

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.

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Mar 19, 2018