Which component is essential for performing a relative valuation?

Relative valuation relies on comparative metrics to evaluate a company's value against its peers or relevant benchmarks. This approach allows analysts to determine whether a stock is overvalued or undervalued compared to similar companies by examining ratios such as Price-to-Earnings (P/E), Price-to-Book (P/B), and Enterprise Value-to-EBITDA (EV/EBITDA).

Using these metrics provides a framework for comparison, making it easier to assess a company’s market value in relation to others within the same sector or industry. The effectiveness of relative valuation comes from these comparisons, helping investors make informed decisions based on how similar companies are valued in the market.

While other options like company history or industry news may provide context or supplementary information, they do not serve the primary function of creating a valuation comparison as directly as comparative metrics do. Future cash flows, on the other hand, are more relevant in discounted cash flow (DCF) analysis rather than relative valuation. Therefore, comparative metrics stand as the cornerstone for conducting relative valuation assessments.