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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.
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Isaac Chan
21 Feb 2019
Business at NUS
Here are some cons that you should look out for.
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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.