Peer Analysis: Stock Selection
Peer Analysis: Stock Selection
Peer Analysis: Stock Selection
FOR
STOCK SELECTION
Peer company
• Peer Company mean companies in the same
industry which have comparable revenues.
• For Example:
• Company “A” has revenue of 100 Crores
• Company “B” has revenue of 5,000 Crores
• Company “C” has revenue of 7,000 Crores
• Company “D” has revenue of 150 Crores and
• Company “E” has revenue of 200 Crores
• All these companies are in the same industry. But all are not peer
companies. Company “B” and “C” are peer companies, while
company “A”, “D” and “E” are another set of peer companies.
Why Peer analysis ?
• We cannot compare the financial parameters
of a huge company with a small one. It is not
justified and will not give a correct picture of
which company is relatively good or bad.
• But when we compared the relatively same
size companies then it gives a better idea of
which company is better then the other based
on certain financial parameters.
Financial parameters
• For every company, there are three important financial
statements to examine and compare:
– The Balance Sheet
– The Income Statement
– The Cash Flow Statement
• The balance sheet tells investors how much money the
company has, how much it owes, and what is left for the
stockholders.
• The cash flow statement is like the checking account; it
shows where the money is spent.
• The income statement is a record of the company's
profitability. It tells you how much money a corporation
made (or lost).
Income Statement Related Ratios:
• The growth here is the revenue growth rate for the company. Example:
A company has a PE ratio of 50. This looks high and we would say that
the company is overvalued. But suppose that the company is growing
at 100% annually. So PEG ratio for the company is 0.5 (50/100).