1. Good Comps
Now, let's look at a practical example on how to pick comps.
For the record, this is a very simple example and not meant to
mimic any particular company, let's assume our target company,
a supermarket, operates in North America. Now, let's take a look at our
peer companies, first we have Alpha located in Canada,
leading supermarket chain specializes in middle income consumers. Then we
have Big Bucks, they're based in the United States,
they have more locations than Alpha, but the US is a bigger market,
but they target lower and middle income consumers.
Next, we have Centibillions, supermarket and discount chain, with 150 locations.
Next is Deep Pockets. Deep Pockets own several different supermarket concepts,
mostly in smaller towns in the United States. Evergreen, based in Canada,
75 locations, supermarket chain, but primarily serves the Central Provinces
in Canada, for example, Manitoba and Saskatchewan. Finally, we have Fat
Cat, supermarket and discount chain, with 100 locations.
Notice that all of these companies are located in North America,
just like the target company you're trying to value.
Also notice they appear to serve middle and lower income consumers.
2. Let's practice!