Which method involves using average share prices of comparable peers for valuation?

The method that uses average share prices of comparable peers for valuation is known as the Comps Method, or comparable company analysis. This approach fundamentally relies on evaluating similar companies in the same industry to establish a benchmark for valuation metrics such as price-to-earnings ratios, price-to-sales ratios, or enterprise value-to-EBITDA multiples.

By analyzing the average share prices and financial ratios of peer companies, investors and analysts can derive a fair value for a target company based on its relative position within that group. The essence of this method lies in its market-based approach, which reflects the current economic conditions and investor sentiment, making it a practical choice for assessing value.

Utilizing comparable peers allows for a context in which investors can understand how the target company stacks up against others in the same sector, meaning it often affords a more dynamic and current picture of valuation compared to other methods that might rely heavily on projections or fixed financial models.