What is comparable company analysis?
Comparable company analysis — "comps" or "trading comps" — values a business by looking at the valuation multiples that similar, publicly traded companies trade at, and applying those multiples to the target's own financials. If a peer set trades at a median of 10x EBITDA, a comparable target is roughly worth 10x its EBITDA, give or take adjustments for differences.
It is a relative valuation method: it prices a company against what the market is currently paying for its peers, rather than against the intrinsic value of its own cash flows the way a DCF does. Comps tell you what a company is worth today in the prevailing market, not what it is worth in some absolute sense.
The whole method lives or dies on the quality of the comparable set. Choose genuinely similar businesses and the output is a credible market check; stretch the peer group to include businesses that are bigger, faster-growing, or differently structured, and the analysis quietly misleads.
How comparable company analysis is built
A comps analysis is constructed in a disciplined sequence:
- Select the peer set. Identify public companies that genuinely resemble the target in business model, sector, size, growth, and margin profile. This is the most judgment-heavy step.
- Gather the metrics. Pull enterprise value, equity value, and the relevant earnings or revenue figures for each peer, often on both a trailing and a forward (NTM) basis.
- Compute the multiples. Calculate EV/EBITDA, EV/revenue, P/E, and others across the set, then summarize with a median and a range rather than a single average.
- Apply to the target. Multiply the target's earnings base by the chosen multiples to derive an implied valuation range, adjusting for differences in growth and quality.
The output is a range, not a point. A clean comps analysis ends with a band of implied values and an honest view of where in that band the target belongs.
Comps versus precedent transactions and DCF
Comparable company analysis, precedent transactions, and discounted cash flow are the three standard valuation methods, and they answer slightly different questions. Comps reflect where peers trade in the public market right now — minority, no-control prices. Precedent transactions reflect what acquirers actually paid in past deals, and therefore carry a control premium. DCF reflects intrinsic value derived from the company's own projected cash flows.
No single method is correct. The convention is to triangulate: comps for the market check, precedents for the acquisition benchmark, and DCF for the intrinsic view. Where the three converge is a defensible value; where they diverge is where the interesting questions live.