Relative valuation does not estimate value. It estimates what the market would pay for this company if it priced it like similar companies. That is a different question, and a useful one, because intrinsic and relative answers rarely agree and the gap tells you something about either the market or your assumptions.
The engine uses four multiples and averages the implied prices:
- P/E, price over earnings. Simple, but distorted by leverage and one-off items.
- EV/EBITDA, enterprise value over operating cash profit. Capital-structure neutral, the workhorse for comparing operating businesses.
- EV/Sales. The only option when earnings are negative. Says nothing about profitability.
- P/FCF, price over free cash flow. Hardest to manipulate.
Peers come from the same SIC industry code, nearest in market capitalization. The table also shows the company's own five-year median multiple, computed point-in-time, so you can see whether it is expensive against its history as well as against peers.
Multiples are shorthand for a DCF. A P/E of 20 embeds a growth rate, a payout ratio and a cost of equity. When peers trade at higher multiples, the honest question is whether their growth or risk justifies it.
Go deeper
- articleDamodaran: Relative valuation (lecture notes, packet 3) · What each multiple is really a function of.
- articleInvestopedia: EV/EBITDA
- dataDamodaran: Multiples by sector (P/E, EV/EBITDA, EV/Sales)