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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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