What Is Comparable Company Analysis?
Comparable company analysis values a business by looking at how the stock market currently prices similar companies. The logic is that businesses with comparable industries, sizes, growth rates, and margins should trade at comparable multiples of their earnings or cash flow.
Because it is grounded in live market prices, comps reflect current investor sentiment, which makes the method fast and market-relevant but also hostage to whether the market itself is rationally pricing the peer group.
How It Works
The first and most judgment-heavy step is selecting the peer set, typically five to ten public companies matched on industry, business model, size, growth, and profitability. Next, the analyst spreads each peer's financials, calculating enterprise value and equity value and deriving multiples such as EV/EBITDA, EV/Revenue, and P/E on both historical and forward estimates.
Finally, summary statistics like the median and quartiles of the peer multiples are applied to the target's corresponding metric to produce an implied valuation range. Enterprise value multiples must be paired with pre-interest metrics like EBITDA, while equity multiples like P/E pair with net income.
Example
Suppose a target company generates $80 million of EBITDA and its peer group trades at a median of 9.0x EV/EBITDA, with a range of 7.5x to 10.5x. The implied enterprise value is 9.0 x $80 = $720 million, with a range of $600 million to $840 million. If the target carries $120 million of net debt, the implied equity value at the median is $720 - $120 = $600 million.
Why It Matters
Comps are the backbone of pitch books, fairness opinions, and IPO pricing because they answer the question every client asks: what would the market pay for this business today? They also serve as a reality check on DCF outputs, flagging when intrinsic assumptions have drifted from market evidence.
Interviewers routinely ask how you would pick comps and why the method might over- or understate value, so be ready to discuss peer selection and the absence of a control premium in trading multiples.
