Relative Valuation
Relative valuation compares a company's valuation multiples to its peers. It answers the question: “Is this stock cheap or expensive compared to similar companies?”
The Six Multiples
Most widely used. Measures how much investors pay for each rupee of earnings.
Useful for banks, financials, and asset-heavy companies.
Good for companies with negative earnings. Captures revenue generation.
Best for comparing companies with different capital structures.
Useful for high-growth companies where profits are not yet visible.
Measures cash generation efficiency. Higher is better.
How Scoring Works
Each multiple is scored relative to the industry average. A score of 50 means the stock trades at the industry median. Scores above 70 indicate attractive valuation; below 30 suggests premium pricing.
The overall valuation score is a weighted average of all six multiples, with higher weight given to the most relevant multiples for the sector.