Definition — what “comps” means
– “Comps” is short for comparables. It is a comparison-based tool used across industries to measure performance or estimate value by looking at similar entities (stores, companies, or properties).
– Common uses:
– Retail: same-store sales (sales at locations open for at least a year).
– Corporate finance: comparable company analysis (valuing a firm by looking at multiples for peers).
– Real estate: recently sold nearby properties with similar features.
Retail comps (same-store sales): purpose and calculation
– Purpose: Separate organic growth at established locations from growth driven by newly opened outlets. This helps reveal whether existing stores are improving or whether expansion is masking weakness.
– Rule of thumb: Exclude stores open less than one year from the comp calculation because launch effects (promotions, initial customer interest) typically inflate early sales.
– Growth-rate formula: (Current period sales − Prior period sales) / Prior period sales.
– Comp-store growth formula: same as above but using only sales from stores open at least one year.
Worked numeric example — retail comps
– Scenario: Last year total sales = $2,000,000. This year total sales = $4,000,000. New stores this year generated $3,000,000; legacy stores (open ≥1 year) generated $1,000,000.
1. Overall growth = (4,000,000 − 2,000,000) / 2,000,000 = 100%.
2. Comp-store (legacy) growth = (1,000,000 − 2,000,000) / 2,000,000 = −50%.
– Interpretation: Total revenue doubled, but existing locations declined 50%. The increase comes from new outlets rather than better performance at older stores.
Comparable company analysis (business valuation): overview and formula
– Concept: Value a target company by applying valuation multiples observed in peer companies. Assumes similar businesses should trade at similar multiples.
– Key metrics used:
– Value numerators: market capitalization (equity value) or enterprise value (EV). Enterprise value = market cap + net debt + minority interest − cash.
– Performance denominators: sales/revenue, EBITDA (earnings before interest, taxes, depreciation, and amortization), or net earnings.
– Basic multiple-valuation formula: Estimated value = selected multiple × chosen performance metric.
– Example: If peer median price-to-revenue multiple = 1.2 and target company revenue = $5,000,000, estimated value = 1.2 × 5,000,000 = $6,000,000.
Worked numeric example — valuation multiple
– Suppose peers trade at an EV/EBITDA multiple of 8. Target company EBITDA = $600,000.
– Estimated enterprise value = 8 × 600,000 = $4,800,000.
– Note: To derive an implied equity value, subtract net debt from EV.
Real estate comps: what to compare and cautions
– What to match: size, age, condition, location/neighborhood, lot size, and functional features (beds, baths, finished area).
– Market context: Adjust for timing (market trending up or down), special-sale conditions (distress, short sale, estate), and differences in sale terms.
– Common pitfalls: using sales that are too old in a fast-moving market, comparing properties that are geographically distant, or relying on listings (active offers) instead of closed sales.
Checklist — using comps responsibly
Retail comps
– Exclude stores open < 1 year when computing same-store sales.
– Adjust for store remodels, major format changes, or atypical events (temporary closures).
– Compare consistent time periods (same months or quarters) to control seasonality.
Comparable company analysis
– Select true peers by business model, scale, growth prospects, and capital structure.
– Use multiple ratios (EV/EBITDA, P/E, price/sales) and check median or trimmed mean to avoid outliers.
– Adjust for one-time items, differing accounting practices, and non-operating assets or liabilities.
Real estate comps
– Use closed-sales data within a recent time window appropriate for local market velocity.
– Adjust for material differences (square footage, lot size, condition).
– Note sale circumstances that could bias price (distress, related-party sale).
Limitations and common sources of bias
– Composition effects: expansion or contraction can hide true same-store trends.
– Timing mismatches: rapidly changing markets make older comps less relevant.
– Accounting and capital structure differences can distort multiples across companies.
– Special sale conditions (distress, bulk sales) can skew real estate comps.
Sources (for further reading)
– Investopedia — Comparables (Comps): https://www.investopedia.com/terms/c/comps.asp
– Aswath Damodaran (NYU Stern) — Valuation resources and multiples: http://pages.stern.nyu.edu/~adamodar/
– The Appraisal Foundation — guidance on appraisal practices for real estate: https://
https://www.appraisalfoundation.org/
– National Association of Realtors (NAR) — research and data on home sales and local market trends: https://www.nar.realtor/research-and-statistics
– Royal Institution of Chartered Surveyors (RICS) — international valuation standards and guidance: https://www.rics.org/
Educational disclaimer: This information is for educational purposes only and is not individualized investment, legal, or tax advice. Verify data and consult qualified professionals before making financial decisions.