How-to
How to do a comparable-companies (comps) analysis
A comparable-companies analysis (comps) values a stock by comparing it to similar public companies on valuation multiples. You build a peer group of businesses that look like the one you are valuing, compute a multiple such as EV/EBITDA for each, and take the median. Applying that peer multiple to your company's own EBITDA gives an implied value you can check against the market price. Comps answer a different question than a DCF: instead of asking what the future cash is worth, they ask what the market currently pays for similar businesses. The result is only as honest as the peer group, so most of the work is choosing comparable companies and the right multiple for the industry.
By The Brief Equity Team · Published
How comps analysis works, step by step
- Build a peer group of public companies that resemble your target in industry, size, growth, and margins.
- Choose the multiples that fit the industry, such as EV/EBITDA for most operating businesses or EV/Sales for unprofitable ones.
- Pull each peer's figures and compute its multiple, using enterprise value for EV-based multiples and market cap for equity ones.
- Summarize the peer set with a median, and note the range, since one outlier can drag a simple average.
- Apply the peer median multiple to your company's own metric to get an implied value, then compare it to the current price.
Comps are a market-relative check, not an absolute answer. They tell you what investors pay today for businesses like this one, which is useful precisely when a DCF feels too dependent on far-off assumptions. Run both and the gap between them is often more informative than either number alone.
The median does the heavy lifting. A peer group of eight companies will usually have one or two with a distorted multiple, from a pending acquisition, a bad quarter, or an unusual capital structure. The median shrugs those off in a way the mean cannot, which is why most analysts lead with it.
Which multiples to use
| Multiple | Best for | Watch out for |
|---|---|---|
| EV/EBITDA | Comparing operating businesses across different debt loads | Ignores capital spending, so it flatters capital-heavy firms |
| EV/Sales | Fast-growing or unprofitable companies with little earnings | Says nothing about whether the revenue is profitable |
| P/E | Quick equity comparison of steady, profitable companies | Distorted by leverage and one-off items below the line |
| P/B | Banks and other balance-sheet-driven businesses | Nearly meaningless for asset-light companies |
The core split is enterprise-value multiples versus equity multiples. EV multiples like EV/EBITDA put companies on the same footing regardless of how they are financed, because enterprise value already includes debt. Equity multiples like P/E sit after interest and capital structure, so two identical businesses with different debt can show very different P/E ratios.
No single multiple is right for every industry. Software gets valued on sales or gross profit, industrials on EBITDA or EBIT, banks on book value. Pick the metric that the market actually uses to price the sector, and use the same one consistently across every peer.
How to build a clean peer group
The peer group is what makes or breaks comps. Good comparables share the important economics: similar industry, growth profile, margins, and business model, not just the same sector label. A slow, mature company and a fast grower can sit in one index and still deserve very different multiples, so resist padding the list for size.
Five to ten well-chosen peers usually beat twenty loose ones. If a company is genuinely hard to compare, that itself is a finding: unique businesses trade on their own terms, and forcing them into a peer median can mislead more than it clarifies. Note the ones that fit poorly rather than hiding them in the average.
Running comps in Brief Equity
Brief Equity models include a Comps tab that lines up peer multiples next to your target. You add the companies you consider comparable, and it pulls their valuation multiples into one table so you can read the set at a glance. It sits alongside the DCF, so you can weigh a market-relative value against an intrinsic one.
Because the model holds a DCF and comps together, the two methods stay in one place instead of two spreadsheets. When your DCF fair value and the comps-implied value disagree, that gap is a prompt to revisit either your assumptions or your peer group, and often both.
Keep reading
Related in Brief Equity
Models
Value it yourself
Build a DCF and EV/EBITDA model on your own assumptions, with Bear, Base, and Bull scenarios, sensitivity and Monte-Carlo analysis, and peer comps.
ExploreGlossary
EV/EBITDA explained
EV/EBITDA divides enterprise value by operating earnings to price the whole business, debt included. It compares firms with different debt loads that P/E cannot, which is why it anchors most comps work.
Read guideGlossary
What is enterprise value (EV)
Enterprise value is the takeover price of a whole company: market cap plus debt minus cash. It measures what a buyer truly pays, and anchors multiples like EV/EBITDA.
Read guide
Worked examples
Frequently asked questions
- What is the difference between comps and a DCF?
- A DCF estimates intrinsic value from a company's own projected cash flows. Comps estimate a relative value from what the market pays for similar companies today. Neither is definitive; investors often run both and study why the two answers differ.
- Which multiple is best for comps?
- It depends on the industry. EV/EBITDA is a common default for profitable operating businesses because it is neutral to how a company is financed. Unprofitable growth companies often use EV/Sales, banks use price-to-book, and steady earners can use P/E. Use the metric the market actually prices the sector on.
- How many companies should be in a peer group?
- Usually five to ten well-matched companies. A smaller group of genuine comparables beats a larger one padded with loose fits. If a company is truly hard to compare, that is worth noting rather than forcing a peer median onto it.
- Why use enterprise value instead of market cap?
- Enterprise value includes debt and subtracts cash, so it reflects the whole capital structure. That lets you compare companies with different debt loads on the same footing. Equity multiples like P/E sit after leverage, so identical businesses financed differently can look very different.