In the "spreading comps" process, what is the first step?

The first step in the "spreading comps" process is to determine the comparable peer group. This step is crucial as it lays the foundation for the entire analysis. A well-defined peer group ensures that the companies being compared share similar characteristics, such as industry, size, growth potential, and geographical location. This alignment is essential to derive meaningful insights from the comparison.

Selecting the right comparable companies influences the accuracy and relevance of the financial metrics analyzed later in the process. Once the comparable peer group is established, analysts can then move on to collecting financial data, cleaning the data for accuracy, and ultimately calculating valuation multiples. Each subsequent step builds upon the groundwork laid in identifying the appropriate peer group, making this initial stage critical for a successful "spreading comps" analysis.