Comparative valuation is an analytical technique used to determine an asset’s or entity’s value by comparing it to similar assets or companies that have recently been sold or are actively traded in the market. This method assumes that comparable assets should exhibit similar valuation multiples.
Mechanism
The mechanism involves selecting a peer group of publicly traded entities or recent transactions with comparable operational characteristics, risk profiles, and market exposure. Relevant financial or operational metrics are then utilized to calculate standardized valuation multiples, such as price-to-sales or enterprise value-to-EBITDA, which are applied to the target asset after appropriate adjustments.
Methodology
The methodology requires rigorous data collection, normalization of financial figures, and a detailed qualitative assessment of distinguishing factors between the target and its comparables. In crypto investing, comparative valuation often involves benchmarking digital assets against similar protocols using metrics like market capitalization-to-total value locked (TVL) or daily active users, adjusting for differences in network effects, development progress, and regulatory clarity to estimate fair value.
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