# Learn Comparable Company Analysis (CCA) & Elevate Your Investing Strategy

## What Is a Comparable Company Analysis (CCA)?

A comparable company analysis (CCA) evaluates a company's value by examining the metrics of similar-sized enterprises within the same industry. By assuming that comparable companies have similar valuation multiples, such as EV/EBITDA, CCA provides a ballpark estimate of a firm's stock price or value. This method is crucial for bankers and analysts to determine whether a company is overvalued or undervalued compared to its peers.

### Key Takeaways

*   Comparable Company Analysis (CCA) helps determine a company's value by comparing financial metrics with similar companies in the same industry.
*   Valuation ratios such as EV/EBITDA, P/E, P/B, and P/S are crucial for assessing whether a company is overvalued or undervalued compared to its peers.
*   CCA often begins with forming a peer group to compare a company on a relative basis, helping investors gauge its enterprise value.
*   While CCA focuses on relative valuations, intrinsic valuation methods like DCF provide a comprehensive view by considering future cash flows.
*   Transaction multiples in comps analysis use recent acquisitions to benchmark a company's value compared to industry norms.

![Comparable Company Analysis (CCA): Evaluating the value of a company using the metrics of other businesses of similar size in the same industry.](https://www.investopedia.com/thmb/IXF-wammhCiP8sPQV74w5D1aNwU=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Comparable-company-analysis-cca_sketch_final-2dad34c051fe44539182d33a907dc83a.png)

*— Investopedia / Michela Buttignol*

## How Comparable Company Analysis (CCA) Works

One of the first things every banker learns is how to do a comp analysis or comparable company analysis. The process of creating a comparable company analysis is fairly straightforward. The information the report provides is used to determine a ballpark estimate of value for the stock price or the firm's value.

## Setting Up a Peer Group for CCA

Comparable company analysis starts with establishing a [peer group](https://www.investopedia.com/terms/p/peer-group.asp) consisting of similar companies of similar size in the same industry or region. Investors are then able to compare a particular company to its competitors on a relative basis. This information can be used to determine a company's [enterprise value](https://www.investopedia.com/terms/e/enterprisevalue.asp) (EV) and to calculate other ratios used to compare a company to those in its peer group.

## Comparing Relative and Comparable Company Analysis

There are many ways to value a company. The most common approaches are based on [cash flows](https://www.investopedia.com/terms/c/cashflow.asp) and relative performance compared to peers. Models that are based on cash, such as the [discounted cash flow](https://www.investopedia.com/terms/d/dcf.asp) (DCF) model, can help analysts calculate an [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp) based on future cash flows. This value is then compared to the actual market value. If the intrinsic value is higher than the market value, the stock is undervalued. If the intrinsic value is lower than the market value, the stock is overvalued.

In addition to intrinsic valuation, analysts like to confirm cash flow valuation with relative comparisons, and these relative comparisons allow the analyst to develop an industry benchmark or average.

Common valuation measures in comparable company analysis are [enterprise value to sales](https://www.investopedia.com/terms/e/enterprisevaluesales.asp) (EV/S), [price to earnings](https://www.investopedia.com/terms/p/price-earningsratio.asp) (P/E), [price to book](https://www.investopedia.com/terms/p/price-to-bookratio.asp) (P/B), and [price to sales](https://www.investopedia.com/terms/p/price-to-salesratio.asp) (P/S). If the company's valuation ratio is higher than the peer average, the company is overvalued. If the valuation ratio is lower than the peer average, the company is undervalued. Used together, intrinsic and relative valuation models provide a ballpark measure of valuation that can be used to help analysts gauge the true value of a company.

## Key Valuation Metrics and Transaction Comparisons

[Comps](https://www.investopedia.com/terms/c/comps.asp) can also be based on transaction multiples. Transactions are recent acquisitions in the same industry. Analysts compare transaction multiples based on the company's purchase price instead of its stock price. If companies in an industry average 1.5 times market value or 10 times earnings, analysts can use these figures to estimate a peer company's value.

## The Bottom Line

Comparable Company Analysis (CCA) is a fundamental tool for evaluating the value of a company by comparing it with its industry peers. By using metrics such as EV/EBITDA, EV/Sales, P/E, and P/B ratios, investors can determine if a company is overvalued or undervalued relative to its competitors. CCA complements intrinsic valuation methods like discounted cash flow (DCF) analysis, providing a comprehensive view of a company's valuation. This approach helps investors make informed decisions by offering insights into a company's market position and financial health.