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Comps Analysis Skill

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What is Comparable Company Analysis?

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Detailed Worked Example

EV/Revenue: $320M x 7.7x = $2,464M implied EV
EV/EBITDA:  $64M x 35.3x = $2,259M implied EV

Average implied EV = ($2,464M + $2,259M) / 2 = $2,362M

DataFlow net debt = $50M
Implied equity value = $2,362M - $50M = $2,312M

Diluted shares = 40M
Implied price per share = $2,312M / 40M = $57.80

Current stock price = $37.50 ($1,500M market cap)
Implied upside = ($57.80 - $37.50) / $37.50 = 54.1%

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Why It Matters

• Investment bankers use comps to advise clients on fair offer prices for M&A transactions. “Based on where your peers trade, a fair acquisition price would be 12-14x EBITDA.”
• Equity researchers use comps to determine whether a stock is over- or under-valued relative to its peer group.
• IPO teams use comps to set the offering price for new public listings — the “IPO valuation” is largely derived from where comparable public companies trade.
• PE firms use comps to evaluate entry and exit multiples for potential acquisitions.
• IC presentations almost always include a comps table to provide market context for the valuation discussion.

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Key Concepts

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How It Works

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Step 1: Clarify Purpose

• “What is the key question?” — Valuation, growth comparison, efficiency benchmarking?
• “Who is the audience?” — IC presentation, quick reference, detailed memo?
• “What is the context?” — M&A advisory, investment decision, sector overview?

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Step 2: Select Peers

• Similar business model — Same industry, similar revenue mix
• Similar scale — Market cap within a reasonable range (typically 0.5x to 3x the target)
• Same industry/sector — GICS classification as a starting point
• Geographic comparability — US-to-US, not US-to-emerging-market

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Step 3: Gather Data

• Operating metrics: Revenue, Growth, Gross Margin, EBITDA, EBITDA Margin
• Valuation: Market Cap, Enterprise Value, EV/Revenue, EV/EBITDA, P/E
• Industry-specific metrics (Rule of 40 for SaaS, ROE for financials, etc.)

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Step 4: Build the Analysis

• Company data rows with revenue, growth, margins
• Statistics block: Max, 75th Percentile, Median, 25th Percentile, Min

• Market Cap, EV, EV/Revenue, EV/EBITDA, P/E
• Same statistical summary

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Step 5: Formatting and Delivery

• Every derived value (margin, multiple, statistic) MUST be an Excel formula referencing input cells
• The only hardcoded values are raw input data (revenue, EBITDA, share price)
• Every hardcoded input gets a cell comment with its source
• Blue font = inputs, Black font = formulas

• After setting up the structure, show the header layout before filling data
• After entering raw inputs, show the input block and confirm sources/periods
• After building operating metrics formulas, show calculated margins and sanity-check
• After building valuation multiples, show multiples and confirm reasonableness
• Do NOT build the entire sheet end-to-end and then present it

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Formatting Standards

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Sanity Checks

• Margin test: Gross margin > EBITDA margin > Net margin (always true by definition)
• Multiple reasonableness: EV/Revenue 0.5-20x, EV/EBITDA 8-25x, P/E 10-50x
• Growth-multiple correlation: Higher growth usually means higher multiples
• Negative EBITDA: If a company has negative EBITDA, its EV/EBITDA is meaningless — use EV/Revenue instead

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Cross-Reference Rule

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Common Mistakes

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Daily Workflow

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Practice Exercise

1. Calculate EV and valuation multiples (EV/Revenue, EV/EBITDA, P/E) for each peer
2. Compute statistics (Max, 75th %ile, Median, 25th %ile, Min) for growth, margins, and multiples
3. Apply the median EV/Revenue and EV/EBITDA multiples to MediTech to get an implied valuation range
4. Determine where MediTech’s current market valuation sits relative to the peer-implied range
5. Explain whether MediTech appears over- or under-valued and identify which metrics drive the gap

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How to Add to Your Local Context

claude plugin install financial-analysis@financial-services-plugins

## Firm-Specific Peer Selection Rules
1. Always include our core coverage universe first
2. Exclude companies with market cap < $500M
3. All comps must include NTM estimates, not just LTM
4. For healthcare, check with sector team before finalizing peers

## Our Standard Metrics
- Always include FCF Yield alongside P/E
- Report both LTM and NTM multiples
- Include Net Dollar Retention for all SaaS comps

{
  "mcpServers": {
    "bloomberg": {
      "url": "https://mcp.bloomberg.com/mcp",
      "headers": { "Authorization": "Bearer YOUR_KEY" }
    }
  }
}

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Common Pitfalls

• Mixing market cap and enterprise value — EV/EBITDA and P/E are fundamentally different metrics because EV includes debt and market cap does not. Do not mix them in the same comparison.
• Inconsistent time periods — All companies must use the same period (all LTM or all FY2024). Mixing quarterly and annual data produces meaningless comparisons.
• Including non-comparable companies — A SaaS company and a hardware manufacturer are not comps, even if they are in the same “technology” sector.
• Using averages instead of medians — One outlier can dramatically skew an average. Always use median for comps statistics.
• Ignoring negative EBITDA — If a company has negative EBITDA, its EV/EBITDA multiple is meaningless. Use EV/Revenue instead.
• Hardcoding numbers into formulas — Every derived value must reference source cells. Hardcoded multiples cannot be audited or updated.