What is the main implication of calculating terminal value using public comps?

Calculating terminal value using public comps primarily provides a starting point for future projections. This method involves comparing the subject company to similar publicly traded companies to estimate how the market values businesses like it. By assessing the financial metrics of these comparable companies, such as their earnings and growth rates, analysts can derive a more grounded and market-oriented estimation of the terminal value.

This approach allows for an understanding of how peers are valued in the market, which in turn can inform assumptions about growth rates and profitability for the company being evaluated. This foundation helps in making informed projections about the company's long-term performance and the associated cash flows that contribute to the terminal value calculation.

While calculating terminal value this way does provide insights from the market, it does not eliminate the need for detailed forecasts or guarantee a higher valuation, as those factors are influenced by a variety of other elements, including market conditions and the specific circumstances of the company analyzed.