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Anonymous

21 Apr 2019

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SeedlyAMA

What are some pros and cons of using relative valuation?

AMA The Fifth Person

Discussion (3)

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Another thing is that RVs don't use your prediction of future cash flows, they use current EBITDA/EV/PE values to evaluate whether your firm is overvalued or undervalued - so you wont be doing any prediction of future earnings there. Though it is the strength of RVs to be able to reflect the current conditions of the market, it is also its weakness when it comes to talking about whether the market in itsself is overvalued, and does not take into account future events that may grossly impact the earnings capablility of a firm today.

Victor Chng

21 Feb 2019

Co-Founder at Fifth Person Pte Ltd

Hi,

The pro is that you can get a feel on the valuation investors are expecting on similar type of company.

The con is that if the market is overvalued and the comparable companies are all priced at overvalue valuation then you may be paying a high price for the company using relative method.

Isaac Chan

21 Feb 2019

Business at NUS

Here are some cons that you should look out for.

  1. Some companies are not good comparables with ...

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