Reading 59: Introduction to Industry and Company Analysis-LOS 2011, companies, valuation, industry, relation

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Session 14: Equity Analysis and Valuation
Reading 59: Introduction to Industry and Company Analysis

LOS d: Explain the relation of "peer group," as used in equity valuation, to a company's industry classification.

 

 

For relative valuation, a peer group is best described as companies:

A) in a similar sector or industry classification.

B) with similar business activities and competitive factors.

C) at a similar stage of the industry life cycle.

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An analyst should form peer groups of companies that have similar business activities, drivers of demand and costs, and access to capital. Companies in the same industry or sector and companies at the same stage of the industry life cycle are not necessarily comparable for equity valuation purposes.