Peers or to industry average:
For example, if a company’s return on equity (ROE) is higher than the industry average, it means that the company is more profitable than its peers. This could be due to a number of factors, such as a more efficient business model, a stronger management team, or a favorable competitive landscape.
Peer analysis is a valuable tool for investment analysts, but it is important to remember that it is not the only factor to consider when making investment decisions. Other factors, such as the company’s growth prospects, its competitive position, and its management team, should also be considered.
Here are some of the benefits of using peer analysis:
- It can help analysts identify companies that are undervalued or overvalued.
- It can help analysts understand how a company’s financial performance compares to its peers.
- It can help analysts identify companies that are similar to the company being analyzed in terms of size, industry, and business model.
- It can help analysts identify companies that are exposed to the same risks and opportunities as the company being analyzed.
Here are some of the limitations of using peer analysis:
- It is based on historical data, which may not be indicative of future performance.
- It can be difficult to find peers that are truly comparable to the company being analyzed.
- It can be subjective, as different analysts may have different opinions on which companies are peers.
Overall, peer analysis is a valuable tool for investment analysts, but it is important to remember that it is not the only factor to consider when making investment decisions.
I recommend checking out the Smallcase pointers above for a better understanding of this topic. Link: https://www.smallcase.com/