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Question:What Are The Possible Weaknesses Of This Peer Approach To Valuation?

What Are The Possible Weaknesses Of This Peer Approach To Valuation?

KNOWLEDGE CHECK What are the possible weaknesses of this peer approach to valuation? The approach does not account for indust

KNOWLEDGE CHECK What are the possible weaknesses of this peer approach to valuation? The approach does not account for indust

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The answer is “C” : The chosen peers might not be true competitors, the company might have multiple divisions, and most appropriate competitors might not have P/E multiples.

This is because peer approach to valuation does account for industry context and it does not only focus on the statistics of only one company. Peer groups are often made up of multiple firms in the same industry, however some firms chosen as competitors might not have P/E multiples.

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