Relative and Historical Valuation
How to judge a company's multiples against similar companies and against its own history, the adjustments that make those comparisons fair, and why neither can tell you what a business is actually worth.
The short version
Relative valuation compares a company's multiples with those of similar companies; historical valuation compares them with the company's own past. Both are quick and grounded in real prices, but both need adjusting for differences in growth, margins, risk, and interest rates. A company can be cheaper than its peers while the whole group is expensive, and below its own average because something has genuinely changed. These comparisons tell you whether a price is unusual, not whether it's right.
By the end of this lesson, you'll be able to
- Compare a company's multiples with peers and adjust for differences in quality
- Compare a company's multiples with its own history, and explain what can change the normal range
- Explain the main limit of both approaches
Why this matters
A P/E of 17 is high for some businesses and low for others. Multiples become meaningful when compared: with similar companies, and with the same company over time. These are the two most common ways professionals judge whether a price looks unusual, and both have traps worth knowing.
Relative valuation: compared with peers
Relative valuation sets a company's multiples beside those of comparable companies. The hard part is "comparable": the closer the business, customers, and risks, the more the comparison means. Then adjust for differences, because a better business deserves a higher multiple.
| P/E | Revenue growth | Operating margin | |
|---|---|---|---|
| STU Corp | 17.2 | 14% | 20% |
| Rival A | 17.1 | 3% | 12% |
| US household products, combined | About 24 |
The industry figure is from NYU Stern professor Aswath Damodaran's January 2026 data, as the group's combined market value divided by its combined net income.1 STU Corp and Rival A are fictional. STU Corp grows faster and earns better margins than Rival A at the same P/E, and trades below the broad industry group. On relative terms, that looks attractive, unless STU Corp's specific risks explain the gap.
The rest of this lesson is for members
Still to come in this lesson: Historical valuation: compared with itself, The limit of both, the key takeaways, and 2 quiz questions with explanations.
Membership opens every lesson in the curriculum, the capstone projects, the interactive tools, and the members-only channels in the Hyperion Entities Discord. The first lesson of every module stays free.
Go deeper
- Comparable Companies and Precedent TransactionsValuation and Modeling (depth track)
- Valuing the Whole MarketValuation and Modeling (depth track)
- Scenario Analysis: Bull, Base, and Bear CasesValuation and Modeling (depth track)
Notes and sources
- Aswath Damodaran, NYU Stern School of Business. PE Ratios by Sector (US), data as of January 2026. Checked 2026-10-01. Back to text
- U.S. Department of the Treasury. Daily Treasury Par Yield Curve Rates. Checked 2026-10-01.