Investors choose the comparable company analysis method over the others because it is easy to use and the information needed to figure out the value is easy to find. This is only true for companies that are traded on the stock market, where all the information is open to the public. This strategy also presumes that the market is doing a good job of pricing the securities of other companies. Companies give you a good range for the valuation, while other techniques, such as the discounted cash flow, depend on a long list of preconceptions.
All of these things make the composition the best and most-used one. People like research analysts, private equity investors, investment bankers, and other types of analysts use the comparable company analysis.
Investors can benefit in many ways from the Comparable Company Analysis, such as:
- Easy to talk to.
- Benchmarks for how much the property could be worth
- Easy to figure out
- A lot of data is out there.
But this process also has some bad things about it.
- It’s easy for things that aren’t fundamental to change.
- Data is not easy to get for private businesses
- Many things can make it hard for you to find the right information to compare for your business.