Not investment advice. Educational reading. See Disclaimer.
L.6 · INTERMEDIATE · 3 MIN
Comparable Selection Criteria (Practitioner)
An investor reading a sell-side comparable-company table is being shown a CONCLUSION — typically 5 to 10 peer names with a median trading multiple. The earlier comps-201 modules introduced peer selection at the principle level (same business model, similar growth). This module is the practitioner depth: the six criteria analysts actually apply to narrow a 30-name long-list to a 6-name working set, and the structured way they DEFEND that list when a committee or client pushes back. Why this matters to a lifelong investor: when you read a research report quoting median peer EV/EBITDA of 12x and the analyst lists six comp names you don't recognize, your job is to ask whether the comp set was assembled with discipline or assembled to support a pre-decided thesis. A comp set you can pick apart in five minutes is a thesis you should pick apart before acting on it.
Cross-sector peers face different cost-of-capital regimes
Sub-sector (narrow)
Same product or end-market within sector
Software within tech, coatings within materials, etc.
Size bracket
EV within roughly 0.3x-3x of target
Scale drives liquidity, index inclusion, multiple regime
Growth profile
Revenue growth within +/-5 percentage points
20% growers and 3% growers don't share a multiple regime
Margin profile
EBITDA margins within +/-5 percentage points
30% margin and 10% margin businesses have different ROIC
Geographic mix
Majority-overlap on revenue geography
EM exposure, FX risk, regulation differ by region
§ 02
The six criteria are CUMULATIVE, not alternative. A name that matches on 5 of 6 stays in the working set with a footnote about the gap. A name that matches on only 3 of 6 is a CROSS-CHECK rather than a comp — analysts will cite it in a sensitivity table but not in the headline median. The discipline of writing down which criterion each peer fails is what makes the comp set defensible.
§ 03
Pick a public company you follow in **Fundamentals** and build a 30-name long-list from the **Screener** filtered by the same sector. Score each peer on the 6 criteria. Write down which 6 you would defend as the working comp set, and which long-list names you would push to the cross-check tier. Note the names you DROP entirely — those are the ones a careless sell-side analyst might quietly leave in the median.
§ 04
A sell-side analyst publishes a coverage initiation citing peer median EV/EBITDA of 14x across a 10-name comp set. You notice three of the ten peers are 2-3x the target's size and operate in different end markets. The analyst's price target depends on applying the 14x median to your target's EBITDA. What is the disciplined response?
§ 05
A defensible comp set is a written argument, not a list of names. Every kept name should have a one-sentence defense (which criteria it passes); every dropped name should have a one-sentence reason (which criterion it fails); every cross-check name should be flagged separately from the headline median. This discipline is what distinguishes a comp set you can ship to an investment committee from a comp set you assembled to support the answer you wanted.
§ 06
After applying the 6 criteria, your working comp set has 5 names. A research head pushes back that 5 is too few for a reliable median and asks you to add 3 more from the long-list to reach 8. Two long-list candidates are 5-of-6 matches (slightly off on size); the other is a 3-of-6 match (different sub-sector, different geography, different margin). What is the most defensible response?
Five questions · AI feedback
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Sit with the ideas.
You are valuing a $4B US mid-cap industrial coatings business growing 8% with 22% EBITDA margins, ~70% North America revenue, and a balance-sheet leverage of 2.1x net-debt-to-EBITDA. From a 30-name long-list of paint and coatings peers, which 6 should you defend as the working comp set under the 6 practitioner criteria (sector, sub-sector, size, growth, margin, geography)?
