Why is it essential to select similar Public Comps and Precedent Transactions?

Selecting similar Public Comps and Precedent Transactions is crucial because it allows for comparable valuations based on expected growth rates. When assessing a company's value, using comparables that share similar characteristics—such as industry, size, growth rate, and market conditions—enables a more accurate analysis of how the company is likely to perform relative to its peers.

When companies are similar in terms of their operational metrics and market environment, analysts can better understand the context in which they operate, which directly impacts future growth expectations and valuation multiples. This similarity provides a more reliable basis for drawing conclusions about valuation and future market performance.

In essence, similar comps yield insights into how the market has historically valued companies with analogous growth prospects, allowing investors and analysts to make informed decisions reflecting realistic expectations for the future.