Comparable Company Analysis: How to Value a Business Using Market Multiples

A DCF model values a company from its own projected cash flows. Comparable company analysis starts from the other direction: it values a business by looking at what similar public companies trade for and applying those multiples to the target. The logic is the same as pricing a house by checking what comparable properties sold for nearby.

Key takeaway: Comparable company analysis works by calculating multiples like EV/EBITDA, EV/Revenue, and P/E across a set of peers, then applying the median to the target. The result is a valuation range that serves as a market-based cross-check against intrinsic methods like DCF.

The Target Company

Here is a mid-size business services company you want to value:

	Amount
Revenue	$300M
EBITDA	$44M
Net Income	$24M
Total Debt	$80M
Cash	$30M
Shares Outstanding	10,000,000

The company has no public share price. You want to estimate what the stock should be worth based on how similar businesses are priced.

Building the Comp Set

Start by identifying publicly traded companies in the same industry with similar size, growth, and margins. For each peer, you need market cap, debt, and cash to calculate enterprise value, plus revenue, EBITDA, and net income to compute multiples.

Here is how the calculation works for one peer (Company B):

	Amount
Share Price	$32
Shares Outstanding	15,000,000
Market Cap	$480M
Total Debt	$80M
Cash	$40M

Enterprise Value = Market Cap + Total Debt - Cash
EV = $480M + $80M - $40M = $520M

Company B has $350M in revenue, $55M in EBITDA, and $30M in net income. From those numbers, the multiples are:

EV/Revenue = $520M / $350M = 1.5x
EV/EBITDA = $520M / $55M = 9.5x
P/E = $480M / $30M = 16.0x

The first two are enterprise value multiples, which measure the value of the whole business relative to operating metrics. P/E is an equity multiple, which compares the market cap (what equity holders own) to net income. The distinction matters when you convert multiples back into a share price.

Repeat this for every company in the peer set.

The Multiples

Here are the trading multiples for all five peers:

Company	EV/Revenue	EV/EBITDA	P/E
A	1.3x	8.5x	14.0x
B	1.5x	9.5x	16.0x
C	1.6x	10.0x	17.0x
D	1.8x	10.5x	18.0x
E	2.2x	12.5x	22.0x
Median	1.6x	10.0x	17.0x

Analysts use the median rather than the mean because it filters out outliers. Company E trades well above the rest of the group, likely because the market expects faster growth. Using the mean would pull all three multiples toward that outlier. The median gives you the pricing of the typical peer.

Valuing the Target

Apply each median multiple to the target's financials. EV multiples produce enterprise value, so you subtract net debt ($80M - $30M = $50M) to get equity value. P/E produces equity value directly.

EV/EBITDA:

Implied EV = $44M x 10.0 = $440M
Equity Value = $440M - $50M net debt = $390M
Implied Share Price = $390M / 10M shares = $39

EV/Revenue:

Implied EV = $300M x 1.6 = $480M
Equity Value = $480M - $50M net debt = $430M
Implied Share Price = $430M / 10M shares = $43

P/E:

Implied Equity Value = $24M x 17.0 = $408M
Implied Share Price = $408M / 10M shares = $41

Multiple	Implied EV	Equity Value	Per Share
EV/EBITDA (10.0x)	$440M	$390M	$39
P/E (17.0x)	—	$408M	$41
EV/Revenue (1.6x)	$480M	$430M	$43

The implied share price ranges from $39 to $43.

EV/Revenue gives the highest valuation because it does not account for profitability. The target's EBITDA margin is about 15%, which is below the peer group. EV/EBITDA captures that gap; EV/Revenue does not. This is why EV/EBITDA is the most commonly used multiple for profitable companies. EV/Revenue is reserved for companies that are not yet generating positive EBITDA.

Comps vs. DCF

Comparable company analysis and DCF valuation answer different questions:

	Comps	DCF
What it measures	What the market pays for similar businesses	What the business is worth based on its own cash flows
Inputs	Peer multiples, target financials	Projected FCF, WACC, terminal growth rate
Speed	Fast once you have the comp set	Requires detailed projections
Subjectivity	Peer selection, which multiples to use	Growth rates, margins, discount rate
Best for	Quick valuation, sanity check, benchmarking	Deep analysis, unique businesses, M&A pricing

Neither method is better on its own. Analysts use both and compare the results. If a DCF says a stock is worth $50 but comps say $39-$43, the gap points to differences in assumptions worth investigating. Maybe the DCF growth projections are too optimistic, or maybe the market is undervaluing the peer set.

Why Comparable Company Analysis Matters

Comparable company analysis applies across corporate finance:

• Equity research: Analysts compare a company's multiples to its peers to find stocks trading below the group median, which may point to undervaluation.
• M&A: Both buyers and sellers use comps to anchor deal negotiations. A target trading at 10x EBITDA in a sector where acquisitions close at 12x has a basis for arguing a premium.
• IPO pricing: Investment banks set offering prices by benchmarking the issuer against publicly traded peers. The IPO price typically reflects a discount to the comp set median.
• Quick valuation: When a full DCF model is not practical, comps provide a defensible estimate with far less work.

Conclusion

Comparable company analysis gives you a market-based valuation by benchmarking a target against its publicly traded peers. EV/EBITDA is the standard multiple for profitable companies, and the range across multiple metrics serves as a cross-check against intrinsic methods like DCF.

For how enterprise value and EV multiples work, see our guide on enterprise value. For intrinsic valuation using projected cash flows, see our guide on DCF valuation. For the financial metrics that feed into these multiples, see our guide on financial ratios.