A comparison is only as good as the peer group.
Relative valuation compares an asset with peers. The quality of the conclusion depends on the quality of the peer group.
| Concept | Explanation | |---|---| | Business similarity | Revenue model, customers, geography, and competitive position. | | Growth similarity | Expected expansion and maturity. | | Margin similarity | Profitability and capital intensity. | | Risk similarity | Leverage, cyclicality, regulation, and concentration. | | Accounting consistency | Differences in definitions and adjustments. | | Cycle position | Where each company sits in an economic or industry cycle. |