Lesson 3 of 7
The peer set decides the answer
One company, three defensible peer sets, three different medians. The comparison set is chosen before any arithmetic and carries more weight than it.
By Javier Sanz
Founder of ValueScreener. Built Ninety Nine, a securities services provider, and sold it to a tier-one global bank; ran operations and internationalization at Alpaca, the brokerage API.
Who writes thisEditorial processLinkedIn (opens in a new tab)X (opens in a new tab)
In one minute
- The peer set is chosen before any arithmetic, and it moves the conclusion further than any calculation inside it.
- Three defensible sets for one company gave medians of 27.19, 22.02 and 20.37 times earnings.
- A peer is a company that shares the driver behind the multiple, not one that shares a label.
Relative valuation looks objective because it ends in arithmetic. The judgement happened earlier, when somebody decided which companies were comparable.
Three defensible comparison sets for one company
- Household and personal products, 10 companies27.19x
- Consumer Defensive sector, 103 companies22.02x
- All US companies, 1,96420.37x
The same company against three sets
Procter and Gamble's own ratio was 21.73 times on 2026-09-15. Against the narrow industry set it sits below the median; against the sector it sits near it; against the whole market it sits above. Nothing about the company changed between those three sentences.
That is the finding, and it generalises: a relative conclusion is a statement about the set, and it has to be reported with the set attached.
What makes a peer
A shared label is not the test. The identity in the first lesson says a multiple is driven by payout, required return and growth, so a peer is a company where those three are comparable.
| Test | Why it matters |
|---|---|
| Same economics of demand | A branded staple and a licensed fragrance business sell differently and reinvest differently |
| Similar capital intensity | Growth costs more where each new dollar of revenue needs more capital |
| Similar accounting basis | A company carrying acquired brands on the balance sheet against one that built them will not share a price to book |
| A comparable earnings base | A company in a loss year has no P/E, and a company in an unusually good year has a misleadingly low one |
The set that flatters
Choosing whether to exclude them is an editorial decision that moves the answer by more than a third. Make it explicitly, write it down, and prefer a rule you set before you saw the numbers: exclude a company in a stated loss year, or one whose margin is more than a stated distance from its own ten-year record.
Two habits that survive review
Report the set with the number. "Twenty-two times, against a ten-company industry set built on this date, two excluded for a loss year" is a claim. "It trades below its peers" is not.
Run the set twice. Once narrow, once wide. If the conclusion flips, the conclusion was about the set, and the honest output is a range with both medians in it.
Check yourself
Why does the peer set carry more weight than the arithmetic applied to it?
- Because medians are unreliable
- Because the set is chosen first and decides which companies the conclusion is drawn from
- Because multiples are always inaccurate
Show the answer
Answer: B.
The same company read against three defensible sets moved from below the median to above it, with no calculation changing.What actually qualifies a company as a peer?
- The same industry classification
- Comparable payout, required return and growth, which are the drivers behind the multiple
- A similar market capitalisation
Show the answer
Answer: B.
A multiple is driven by three things. A peer is a company where those three are comparable; a shared label is a starting point, not the test.Two companies in a ten-company set are having a loss-making or near-loss year. What is the disciplined response?
- Leave them in, because excluding data is cherry-picking
- Apply a rule you set before seeing the numbers, and report which companies it removed
- Always exclude any company above 100 times earnings
Show the answer
Answer: B.
Either choice moves the arithmetic mean by more than a third here. What makes it defensible is a rule stated in advance and reported with the result.Sources
- The product's public company catalogue and distribution endpoint, read 2026-09-16: the ten-company industry set and the sector and all-market medians, built 2026-09-15.
- Damodaran, Investment Valuation: the comparable-firm problem, and controlling for the fundamentals that differ inside a peer set.
- Greenblatt, The Little Book That Beats the Market, 2005: the case for a rule fixed in advance over a judgement made after seeing the data.
What this leaves out
- The industry set is defined by the product's own industry label and a market value cut-off. Both are choices, and a different screen gives a different set.
- Cohort figures were built on 2026-09-15 and are rebuilt on a cadence.
- A company with no computed ratio is absent from every set here, which is itself a selection: loss-making companies drop out of a P/E comparison entirely.
- Nothing here is advice about any security.