A comps analysis checklist
A peer-set valuation can look rigorous on the surface: you have gathered eight peer companies, calculated median multiples, and applied them to your target. In reality, you may have built the peer set backward (to justify a conclusion you already reached), excluded outliers (because they do not fit), and failed to investigate what the multiples actually mean. This checklist is your guard rail—a systematic framework for building, validating, and stress-testing a comps analysis before you act on it.
Quick definition: A comps checklist is a structured set of validation questions that force you to examine peer selection, multiple calculation, and the reasonableness of your final valuation before committing capital.
Key takeaways
- Run through the checklist before you finalize a comps-based valuation to catch major flaws
- The checklist is organized into peer-set selection, multiple calculation, and interpretation phases
- Answering "no" to any question should trigger deeper investigation or reassessment of your analysis
- This is not a substitute for judgment, but a tool to make sure your judgment is informed
Comps Analysis Steps
Peer-set selection checklist
Before you calculate a single multiple, you must validate that your peer set is defensible. Answer the following:
1. Have I defined selection criteria before building the peer set? Write down the criteria (business model, market segment, growth rate, geography, size range) before you screen for peers. This prevents you from choosing peers that support your conclusion. If you defined criteria and found only four peers met them, either broaden the criteria or acknowledge that your peer set is small and less reliable.
2. Are all peers truly in the same industry classification or business model? Do not mix advertising (Google, Meta) with traditional software (Salesforce, Workday) without explicit acknowledgment. Do not mix marketplace (Airbnb, DoorDash) with SaaS. If your peer set spans multiple business models, segment them and calculate cohort multiples for each. Do not average across incompatible models.
3. Are growth rates aligned across the peer set? If your peer set spans companies growing at 5% and companies growing at 50%, you have a problem. The multiples will be meaningless. Screen for growth-rate alignment (e.g., peers between 20–40% growth). If you must include mixed growth rates, segment by cohort and note the growth rate for each peer.
4. Are market segments aligned? Enterprise vs mid-market vs SMB SaaS have different unit economics and multiples. Do not mix without segmentation. Similarly, domestic-focused vs international-focused companies may have different growth paths. Align on this axis.
5. Is the size range reasonable? Include only peers within 1/3 to 3x the target company's market cap. A $2B target should not be comped to $100M micro-caps or $100B mega-caps. If there are no peers in the size range, acknowledge this limitation and either broaden the size range with explicit caveats or supplement with precedent transactions.
6. Are there at least six peers? Fewer than six and your median is not statistically meaningful. If you cannot find six comparable companies, your peer set is too narrow. Either broaden selection criteria or supplement with other valuation methods (DCF, precedent transactions).
7. Have I investigated why each peer trades at a different multiple? Do not treat the peer set as a homogeneous blob. If one peer trades at 12x and another at 6x, why? Is it growth (one is growing faster)? Is it margins (one has better profitability)? Is it risk (one faces competitive threats)? Understanding the scatter improves your analysis.
8. Have I excluded any peers and documented why? If you excluded peers from the analysis (e.g., "that one is a special situation"), document the reason. Do not silently exclude outliers because they do not fit your narrative. Acknowledge the outlier and explain why it is not comparable.
Multiple-calculation checklist
Once you have a defensible peer set, validate how you calculate and interpret the multiples:
9. Am I using the right metric for the multiple? For mature, profitable companies, P/E and EV/EBITDA work. For growth companies, EV/Revenue, EV/FCF, and PEG are more stable. For capital-intensive companies, EV/EBITDA is standard. Do not use P/E for unprofitable companies or companies with volatile earnings.
10. Am I using trailing or forward multiples consistently? If you calculate trailing EV/Revenue for some peers and forward for others, you are not comparing apples to apples. Pick one (forward is preferable for growth companies because it normalizes for the current revenue base). Apply it consistently across all peers.
11. Have I adjusted for major non-recurring items? If a peer had a one-time gain or loss in the latest year, should I add it back? For most analyses, yes. Remove non-recurring items and calculate multiples on normalized earnings. For example, if Company A had a $100M non-recurring gain that boosted net income, remove it before calculating P/E.
12. Have I calculated both mean and median? Calculate both. If they are close, the peer set has tight dispersion. If the mean is materially higher than the median, outliers are pulling the average up. Report both and explain the dispersion.
13. Have I calculated quartile ranges (25th, 50th, 75th percentile)? Report the interquartile range (25th to 75th percentile) as your primary valuation range, not a single median. This gives you a defensible low-base-high framework.
14. Have I adjusted multiples for major structural differences? If your target company has higher gross margins than peers, higher growth, or lower leverage, should you adjust the multiple upward? Only if you can quantify the adjustment explicitly. For example: "Our target's gross margin is 5 percentage points higher; this typically supports a 10% multiple premium (from 6x to 6.6x)." Document the assumption.
15. Have I validated that the multiples are not at a market extreme? Are the peer multiples elevated because the entire sector is in a bubble? Are they depressed because the sector is in a cyclical trough? For cyclical industries, compare to historical peer multiples at similar points in the cycle, not just trailing multiples.
Interpretation and sanity check
Once you have calculated multiples, validate that your interpretation is sound:
16. Does my target company truly deserve to trade at the peer multiple? If your target is lower-growth, higher-risk, or lower-margin than the peer median, it should trade at a discount to the median. If it is higher-quality, it might trade at a premium. Do not mechanically apply the peer median without this qualitative check.
17. What growth and margin expectations are embedded in the peer multiples? Reverse-engineer the peer multiples. If peers trade at 15x P/E and earnings growth is 15%, what cost-of-equity is embedded? (Roughly, P/E = Growth / Cost of Equity, so Cost of Equity = 15 / 15 = 1.0, or 100%, which is nonsense.) This means peers are pricing in more than just earnings growth; they are pricing in margin expansion or other value creation. Do you expect your target to deliver the same?
18. Is the peer-set valuation consistent with a DCF valuation? If possible, build a rough DCF on your target and see if it comes in close to the comps range. If comps suggest $50/share and DCF suggests $30/share, something is wrong. Investigate the gap.
19. Have I stress-tested the valuation? Ask: What if my target's growth is 2 percentage points lower than I assumed? What if it trades at 1 multiple point below the median peer (say, 5x instead of 6x)? What if I use the 25th percentile instead of the median? Build a low-base-high range and see if you have conviction in that range.
20. Have I compared my valuation to recent transactions (M&A or IPO)? If a comparable company was acquired in the past year or IPO'd, what did buyers/investors pay? This is real market evidence. If your comps valuation is way out of line with recent transactions, investigate why.
Red flags: when to reject or revise the analysis
Answering "no" to any of the following should trigger a reassessment:
Peer set is too small (fewer than 6 companies): Your peer set lacks statistical power. Either expand it or supplement with DCF and precedent transactions.
Peer set is too dispersed (25th percentile is less than 75% of the median, 75th percentile is more than 125% of the median): High dispersion suggests the peers are not truly comparable. Investigate why they trade at different multiples and segment if necessary.
The target company is materially different from peers: If your target has different growth, margins, or business model, the peer multiple is less reliable. Use a wider range and weight DCF more heavily.
The sector is at a cycle extreme (valuations are at multi-decade highs or lows): Comps are less reliable at extremes. Supplement with historical analysis of what multiples look like at similar cycle points.
Major recent transactions contradict the comps valuation: If a comparable company was acquired at 8x EV/Revenue but your peer set trades at 12x, there is a disconnect. Investigate whether the deal was a bargain, whether the peer set has changed since the deal, or whether the acquisition was strategic (including synergies).
FAQ
How do I handle a company in an industry where there are no good peers? Expand the peer set geographically (include international peers), look for business-model analogs in different industries, or use precedent transactions. If none of those work, rely more heavily on DCF.
Should I include a company acquired in the past two years in my peer set? No. If it is still trading as a subsidiary, it might be, but do not include recently acquired companies. Use them instead as precedent transactions.
What if one peer just reported earnings that missed guidance? That is fine to include, but note the miss and whether it is transient or structural. Do not exclude it just because of one bad quarter.
How do I handle a peer that is undergoing restructuring? Exclude it from the base peer set. You can analyze it separately and note that it is a special situation, but including it in the median will distort the analysis.
Should I update my peer set annually? Yes. Every year, refresh your peer list, recalculate multiples, and update your fair-value range. Markets move, peers change, and your target company evolves. Annual updates keep your analysis current.
Stress-Testing Your Comps Valuation
A comps analysis is only as robust as your assumptions about growth, margins, and risk differentiation. After you calculate a fair value from peer multiples, stress-test it by asking: What if I am wrong about the most critical assumptions?
Build a three-scenario framework:
Bear case: Your target company grows slower than the peer median (say, 10% vs peer median of 15%). It has lower margins or faces stronger competition. It trades at a 20% discount to the peer median multiple. This scenario might occur if a competitive threat emerges or if the company's growth profile decelerates.
Base case: Your target matches peers on growth and quality. It trades at the peer median multiple. This reflects your central expectation.
Bull case: Your target company grows faster than peers (say, 20% vs peer median of 15%), has higher margins, and deserves a 20% premium to the peer median multiple. This scenario might occur if the company executes better than expected or if it captures market share.
Assign probability weights to each scenario (e.g., 20% bear, 60% base, 20% bull). This produces a probability-weighted fair value that acknowledges genuine uncertainty without false precision.
For each scenario, also test what happens to your recommendation if the stock price is 10% higher or lower than your calculated fair value. This builds resilience into your analysis and ensures you have conviction across a reasonable price range.
Related concepts
- Building the peer set that actually compares — How to select defensible comps from the start
- Common comp analysis pitfalls — Specific mistakes to avoid in peer-set construction
- Comps vs DCF: when each wins — Understanding when to rely on comps vs other methods
- Football-field valuation charts — How to integrate comps with DCF and precedent transactions visually
Summary
Running a rigorous comps analysis requires discipline at every step: peer selection, multiple calculation, interpretation, and stress-testing. Use this checklist to validate your work before you act. Spend the most time on peer-set selection—that is where the largest errors hide. Once you have a defensible peer set, calculate multiples mechanically, but stress-test the interpretation. Ask yourself: Does my target really deserve to trade at this multiple? Is there a reason the peer multiples might be wrong? Have I missed something the market knows? The best comps analysis is one where you have interrogated your own assumptions and can defend each choice. A peer set built backward to justify a conclusion you already reached will eventually cause you to lose money.