Trading comparables
By Michael Song · Wharton MBA · ex-Greenhill · investment banking interview coach
4 min read · updated June 29, 2026
Trading comps answer a market question, not a fundamental one: what is the market paying for similar companies right now, and what does that imply this one is worth? Where a DCF values a business on its own cash flows, comps value it by analogy: you find a peer set, see what multiple they trade at, and apply it. It's fast, it's grounded in real prices, and it's the first thing an analyst pulls together.
The logic is simple. If five companies in the same business trade at roughly 10x EBITDA, and your target does $200 of EBITDA, the market is implicitly telling you it's worth about $2,000 of enterprise value. The whole craft is in choosing a defensible peer set and the right multiple.
Step 1: Pick the set
A comp is only as good as its comparability. You want public companies that look like the target on the dimensions that drive value:
- Industry / business model: same sector, similar products and end-markets.
- Size: revenue and market cap in the same ballpark. A $50bn leader doesn't trade like a $500m challenger.
- Growth and margins: the market pays up for faster growth and fatter margins.
- Geography: where they earn the money, since that drives risk and tax.
Throwing every name in the sector into the set to make it bigger. A loose peer set produces a wide, meaningless multiple range. Five genuinely comparable companies beat fifteen loose ones, and you should be ready to defend why each name is in there, because a good interviewer will ask you to justify the set or kick one out.
Step 2: Pick the multiple
A multiple is just value divided by a financial metric, and the two halves have to match. An enterprise-value multiple goes over a pre-interest metric (because EV belongs to all capital providers). An equity-value multiple goes over an after-interest metric (because equity is what's left for shareholders).
- EV / EBITDA: the workhorse. Enterprise value over operating cash earnings.
- EV / Revenue: for early-stage or unprofitable companies with no meaningful EBITDA yet.
- P / E: price (equity value) over net income. Equity-side, so capital-structure dependent.
EV/EBITDA is the default because it's capital-structure and (largely) accounting-policy neutral. EBITDA sits above interest, so it isn't distorted by how a company is financed, and adding back D&A strips out depreciation-policy differences. That lets you compare a debt-heavy company to a debt-free one on an apples-to-apples basis, which is exactly what P/E can't do, because net income is hit by both interest expense and tax structure.
Step 3: Apply it
You don't pick one number. You take the range. Line up the peers, look at where they cluster (the median and the interquartile range are more robust than the mean, which one outlier can drag around), and apply that range to the target's metric.
Say comps trade at a median of 9x to 11x forward EBITDA and your target does $200 of EBITDA. That implies an enterprise value of roughly $1,800 to $2,200. Bridge by net debt and you've got an equity value range. Notice you get a range, not a point estimate. Comps frame the market's view, they don't pretend to precision.
Trading vs. transaction multiples
One thing to keep straight: comps use current trading prices, so they reflect what minority shareholders pay for small stakes day to day, with no control changing hands. That's why comps typically come in below precedent transactions, which embed a control premium. More on that in the precedent transactions article.
Be able to say the sequence cleanly: pick a tight peer set → choose the right multiple → apply the range to the target's metric → bridge to equity. And always pair EV multiples with pre-interest metrics and equity multiples with after-interest metrics. Mismatching them (P/EBITDA, say) is an instant tell that you don't know which value the multiple describes.
Glossary
New to the lingo? Every term used above, in plain English.
- Trading comps
- Comparable companies analysis. You value a company by looking at the multiples that similar public companies trade at right now.
- DCF (Discounted Cash Flow)
- A way to value a company by projecting its future cash and discounting it back to what it is worth in today’s dollars.
- EBITDA
- Earnings Before Interest, Taxes, Depreciation, and Amortization. A rough proxy for a company’s operating cash profit, before financing and accounting choices.
- EV (Enterprise Value)
- The value of a company’s whole operations, to every investor including lenders and shareholders. It does not depend on how the company is financed.
- Multiple
- Valuation shorthand like EV/EBITDA or P/E. It shows how many times a metric the market is paying for a company, which lets you compare businesses of different sizes.
- P/E ratio (Price to Earnings)
- A company share price divided by its earnings per share. It shows how many dollars investors pay for each dollar of profit, and lets you compare how expensive stocks are.
- Net income
- A company profit after all expenses, interest, and taxes are taken out. It is the bottom line of the income statement, also called earnings.
- D&A (Depreciation and Amortization)
- Spreading the cost of long-lived assets over the years they are used. Depreciation is for physical assets, amortization for intangible ones. Both are non-cash expenses.
- Net debt
- A company total debt minus its cash. It is what you subtract from enterprise value to get to equity value, since a buyer could use the cash to pay down the debt.
- Equity Value
- The slice of a company that belongs to its shareholders. For a public company this is the market capitalization (share price times shares outstanding).
Frequently asked
- What is a trading comparables analysis?
- Trading comps value a business off what the market is paying for similar public companies right now. You find a peer set, see what multiple they trade at, and apply it to your target. If five peers trade at 10x EBITDA and your target does $200 of EBITDA, the market implies about $2,000 of enterprise value. It is fast and grounded in real prices.
- How do you pick a good peer set for comps?
- Choose public companies that resemble the target on the dimensions that drive value: same industry and business model, similar size, comparable growth and margins, and similar geography. Do not throw every name in the sector in to make the set bigger. Five genuinely comparable companies beat fifteen loose ones, and you should defend why each is in there.
- Why do trading comps come in below precedent transactions?
- Trading comps use current trading prices, which reflect what minority shareholders pay for small stakes day to day, with no control changing hands. Precedent transactions embed a control premium because an acquirer buys the whole company. So comps typically sit below precedents, which price in the premium a buyer pays for control and synergies.
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