Analyst valuations – it’s always cheap relative to something else!
Analysts appear to relish assessing companies relative to peer group.
Without mentioning names here is an extract from something I received today:
Relatively cheap compared to principal listed comparator
…we can see that ‘Company A’ December 2008 P/e of 17.7x is only fractionally ahead of the sub sector average (16.9x) and well behind that of ‘Company B’ (20.7x). Given a superior product and a more diversified customer base we believe ‘Company A’ should trade at a premium to the sector and we remain buyers.
So the analyst concludes that Company A is a ‘buy’ simply because it is trading at a big discount to another ‘similar’ company in the sector. Never mind that Company A and Company B are very different in size, quoted on different markets and that the sector in question has been concocted by the broker and doesn’t actually formally exist.
That’s my Friday whinge out of the way!
Without mentioning names here is an extract from something I received today:
Relatively cheap compared to principal listed comparator
…we can see that ‘Company A’ December 2008 P/e of 17.7x is only fractionally ahead of the sub sector average (16.9x) and well behind that of ‘Company B’ (20.7x). Given a superior product and a more diversified customer base we believe ‘Company A’ should trade at a premium to the sector and we remain buyers.
So the analyst concludes that Company A is a ‘buy’ simply because it is trading at a big discount to another ‘similar’ company in the sector. Never mind that Company A and Company B are very different in size, quoted on different markets and that the sector in question has been concocted by the broker and doesn’t actually formally exist.
That’s my Friday whinge out of the way!