Fundamental Glossary / Valuation Methods
Relative Valuation
Valuing a company by the multiples at which similar assets trade.
Formula
Price or enterprise value compared with earnings, book, sales, or cash flow, versus peers or versus the company's own history.
What it means
Relative valuation does not ask what the cash flows are worth in the abstract. It asks what the market currently pays for a rupee of earnings or book value in this neighbourhood.
It is faster than a DCF and it imports the market's mood, including its mistakes. If the whole sector is expensive, a stock that is cheap versus the sector can still be expensive versus its cash flows.
How to read it
Compare like with like: the same multiple, the same earnings definition, similar growth, and similar balance sheets. Then ask whether a premium or a discount is earned by the returns on capital.
What to watch
A single peer with a distorted year can set a bad benchmark. Use a median of a considered set, and show the range.
This note explains the term. It is not a research recommendation, a target price, or a comment on any security. Ratios and regulatory thresholds change; use the latest filing or circular for a live figure.