Use of Comparable Company Analysis for Valuation

Comparable company analysis or COMPS as is known in valuation parlance, is to know or determine the worth of a company by comparing it to another company or companies of similar size in similar industry. Also known as Peer Group analysis , it is widely used in the field of valuation and corporate finance. So it is basically an indirect way of valuing a company rather than using direct methods of valuation. COMPS helps investors take informed decision on the valuation- as fairly valued, undervalued or over valued as the case may be. Various valuation multiples and financial metrics are used to make investment decisions.
COMPS gives you a good range for the valuation, while other techniques, such as the discounted cash flow, depend on a long list of preconceptions.