Stick to the Fundamentals and Discover Your Peers

Jens Overgaard Knudsen, Simon Kold, Thomas Plenborg

Research output: Contribution to journalJournal articleResearchpeer-review


The use of industry as a criterion for selecting peers for multiples-based valuation rests on the notion that companies operating in the same industry are more likely to share fundamental value drivers (i.e., profitability, growth, and risk). However, such companies may not have similar characteristics in terms of these drivers and thus should not be traded at the same multiple. We analyze this issue by developing the sum of absolute rank differences (SARD) approach. The SARD approach can account for an infinite number of proxies for profitability, growth, and risk while remaining independent of industry classifications. Our results indicate that the SARD approach yields significantly more accurate valuation estimates than the industry classification approach.
Original languageEnglish
JournalFinancial Analysts Journal
Issue number3
Pages (from-to)85-105
Number of pages21
Publication statusPublished - 2017

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