Module II· Trading ComparablesBasic
Question
What are the pros and cons of trading comps versus a DCF?
Answer
Trading comps
- + Market-based, easy to communicate, fewer assumptions, fast
- − No perfect comps, follows market trends (including hype), a static snapshot
DCF
- + Fundamental, independent of market sentiment
- − Many assumptions, sensitive to WACC + growth
IB practice
Both in parallel — triangulation. Both have weaknesses; together they give a more robust range.