Valuation: Comps & Precedents
What are the main limitations or weaknesses of trading comps an interviewer wants you to acknowledge?
Model answer
- 'Garbage in, garbage out' - no two companies are truly identical, so comparability is always imperfect.
- It inherits the market's mood - if the whole sector is over/undervalued, comps carry…
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More from Valuation: Comps & Precedents
- What are the main valuation methodologies?
- Why might trading comps and precedent transaction comps give different values?
- Why is EV/EBITDA often preferred over P/E for comparing companies?
- What are the three primary valuation methodologies a banker uses, and in one line each, what is each based on?
- Which of the standard valuation methodologies tend to produce the HIGHEST and the LOWEST values, and why?
- Walk me through how you perform a comparable companies analysis.
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