Intermediate8 min read
Peer group and relative valuation
A ratio, on its own, says nothing. It only becomes useful once you know what to compare it against, and "compared to what" turns out to be a harder question than it looks.
The obvious answer is other companies. But which ones? Grouping companies together because they are all large, or all technology, or all mentioned in the same breath as "big tech" is not the same as building a that holds up. It is the most common mistake in , and seeing it go wrong first makes the right approach easier to learn.
Take Microsoft (MSFT) as an example: its numbers carry the rest of this walkthrough.