Valuation: Multiple comparison

What it is

You apply a peer-derived multiple (EV/EBITDA, P/E, EV/Sales, P/NAV) to the target's relevant financial metric to derive an implied valuation. Compare to current — the gap is the upside.

This is the default activist valuation framework. Transparent, defensible, and the input data (peer multiples) is observable and verifiable. If another framework doesn't clearly fit the thesis, start here.

When to use

• ✅ Almost always the starting frame
• ✅ An identifiable peer set exists with stable multiples
• ✅ Combine with SoP for multi-segment targets
• ✅ Combine with precedent transactions for M&A theses
• ❌ Avoid when the peer set is too narrow (1–2 comps) or too generic (sector ETFs, broad indices)
• ❌ Skip for binary-outcome theses (regulatory approval, fraud findings) — multiples don't capture this
• ❌ Unreliable during transition periods (post-spinoff, pre-IPO peers)

Choosing the metric

Pick the metric the market actually uses to price the category. Getting this wrong is the #1 reason multiple-comparison decks get dismissed.

When in doubt, show two metrics — EV/EBITDA and one other — and triangulate. Do not show three; the reader loses the thread.

Methodology

1. Pick the metric — use the table above
2. Define the peer set:
   • 5–7 publicly traded comparables
   • Same business model, scale, and geography
   • Use peers the target itself cites in its 10-K or investor day
   • Exclude outliers (acquisitive, distressed, ex-growth)
3. Calculate peer multiple statistics: median, mean, range
4. Apply median multiple to target's metric for implied EV
5. Subtract net debt for equity value
6. Divide by share count for implied share price
7. Show a range — bear (low quartile), base (median), bull (high quartile)

The peer-set hygiene rules

These determine whether your valuation survives PR rebuttal:

1. Use peers the target's 10-K cites. If you invent a peer set, the company will publish the "real" peer set and discredit you.
2. Exclude controlled / illiquid stocks. Family-controlled or founder-controlled multiples are often distorted.
3. Use forward multiples, not trailing. The market trades on forward expectations.
4. Time-window the multiples. Spot multiples are noisy; use 3-month or 6-month average.
5. Cite the data source. Bloomberg, FactSet, or Capital IQ — name it. "Our estimates" is not acceptable to a proxy advisor.
6. Footnote every adjustment. If you normalised EBITDA for one-offs, show the bridge.

Sensitivity convention

                                Multiple applied
Metric            Bear (low Q)   Base (median)    Bull (high Q)
EV/EBITDA         8.5x           10.5x            12.5x
                  $42 / share    $58 / share      $74 / share
                  +5%            +45%             +85%

Plus a "what would have to be true" column: if the target trades at the high quartile, what does that imply about underlying performance?

Presentation conventions

Chart 1 — the gap chart (peer-gap pattern)

Horizontal bar chart. Peers sorted descending by multiple. Target in warning colour (red/orange), peers in neutral grey. Peer median marked as a vertical line. Title carries the punchline: "Company trades at 6.1× vs. a peer median of 10.5×."

Chart 2 — the bridge

Current price → implied price, with each step labelled:

• Starting point: current EV or share price
• Multiple re-rating (to peer median)
• Operating improvement (if any)
• Capital return (if any)
• Target price

Each step in its own colour block, annotated with $ and %.

Slide 3 — the table

Peer table with columns: ticker, market cap, EV, revenue, EBITDA, EV/EBITDA, notes. Target row at top, bolded. Footnote the data source and date.

Common rebuttals and how to pre-empt them

When to combine with other frameworks

Multiple-comparison is rarely standalone in a strong deck. Triangulate across 2–3 frameworks:

• Multiple + SoP — for breakup theses (each segment's multiple)
• Multiple + Precedent transactions — for sale-of-company theses
• Multiple + DCF — for undervaluation theses where catalyst is uncertain
• Multiple + Asset value — for real-estate-heavy or commodity-heavy targets

Anti-patterns

1. Single-peer comparison. "Company trades at 8× vs peer at 12×" — one peer is not a set; one peer is a coincidence.
2. Average, not median. Averages are distorted by outliers. Use the median, always.
3. Cherry-picked time window. If you use a 6-month average, use it for every peer, not selectively.
4. Forward multiple on the target, trailing on peers. Must be symmetric.
5. Ignoring net debt. Especially common on "EV/EBITDA → share price" bridges. Recurring error. Always start enterprise-value, subtract debt, add cash.

Exemplars

• Elliott · Phillips 66 (2025) — 6.1× current vs. 8.1× SoP multiple gap; +75% upside
• Pershing Square · Canadian Pacific (Feb 2012) — operating-ratio re-rating implied via railroad-peer multiple
• Starboard · Darden (Sep 2014) — restaurant-peer multiple + REIT multiple combination
• Trian · DuPont (Feb 2015) — segment-by-segment multiple application
• Greenlight · Peloton (Oct 2024) — subscription-business multiple expansion (anchored on Spotify, Netflix)
• Land & Buildings · Welltower (Apr 2026) — relative multiple framing (rotate to better-priced peer)

Full list: examples/by_valuation.json → multiple_comparison

See also

• patterns/peer-gap.md — multiple comparison as the operating-metric gap
• slides/peer-gap-chart-recipe.md — workhorse visual
• valuation/sum-of-parts.md — combination framework
• theses/multiple-rerating.md — when this is the dominant thesis