How does the DCF method primarily differ from comparables in valuation approaches?

The primary difference between the DCF method and comparables in valuation approaches lies in the focus on intrinsic value versus market value. The DCF method is essentially centered around intrinsic value, which is derived from the company's expected future cash flows, discounted back to their present value. This approach emphasizes the underlying financial performance of the company, taking into account its specific operational circumstances, growth rates, and risk factors.

In contrast, comparables utilize market value as they analyze how similar companies are trading in the market. This method involves looking at multiples derived from peer companies, such as P/E ratios or EV/EBITDA, which reflect the current market perception rather than the fundamental value based on future cash flow projections.

This distinction is crucial because it explains how each method approaches valuation; DCF is about assessing the true worth based on expected performance, while comparables reflect current market sentiment and relative positioning within the industry.