Comps

Understanding Comps: Definition, Uses, and Examples

Key takeaways
* “Comps” (comparables) are comparisons of financial or market metrics used to assess performance or value across retail, business valuation, and real estate.
* Retail comps (same-store sales) isolate performance of stores open more than one year to show organic growth.
* In valuation, comparable company analysis uses market multiples (e.g., EV/EBITDA, P/S) to estimate fair market value.
* Real estate comps compare similar properties (size, age, location) and require adjustments for condition, timing, and sale circumstances.
* Limitations include differences in accounting, one-time events, market shifts, and poor comparability of chosen peers.

What are comps?
Comps (comparables) are metrics used to compare like-for-like performance or value:
* In retail: same-store sales versus the prior period.
* In valuation: market multiples of peer companies to infer a target’s value.
* In real estate: recent sale prices of similar properties to estimate a property’s market value.

Retail comps: same-store sales
Purpose
* Measure organic growth by excluding new stores (typically those open less than one year).
* Reveal whether growth comes from improving performance at existing locations or from expansion.

How to calculate same-store growth
1. Calculate overall growth rate: (Current period sales − Prior period sales) / Prior period sales.
2. For same-store growth, exclude sales from new stores and recalculate using only stores open more than one year.

Example
* Prior year sales: $2,000,000
* Current year sales: $4,000,000
Overall growth = ($4,000,000 − $2,000,000) / $2,000,000 = 100%
If new stores contributed $3,000,000 and existing stores $1,000,000:
Same-store growth = ($1,000,000 − $2,000,000) / $2,000,000 = −50%
Interpretation
* Positive same-store growth indicates improving performance at established locations.
* Rising total sales with declining comps suggests growth driven mainly by new openings, which can mask weaker core performance.

Comps in business valuation (Comparable Company Analysis)
Purpose
* Estimate fair market value by comparing a target company to similar public peers using valuation multiples.

Common multiples
* EV/EBITDA — compares enterprise value to operating cash earnings.
* EV/Sales (P/S) — useful for early-stage firms with negative earnings.
* P/E — price-to-earnings for profitable companies.

How it works
1. Select a peer group of similar companies (industry, size, growth, margin profile).
2. Calculate relevant multiples for each peer.
3. Apply a chosen multiple (median or trimmed mean) to the target’s metric (EBITDA, sales, earnings) to derive an implied value.

Practical notes
* Adjust for non-recurring items, accounting differences, capital structure, and growth prospects.
* Use a range of multiples and sensitivity analysis rather than a single point estimate.

Real estate comps
Purpose
* Estimate property value by comparing recent sales of similar properties in the same market.

Key factors to compare
* Location and neighborhood characteristics
* Size (square footage, lot size)
* Age and condition
* Number of bedrooms/bathrooms and layout
* Sale date and market conditions
* Sale circumstances (distressed, short sale, estate)

Adjustments and pitfalls
* Time adjustments: markets change—older comps may require price adjustments.
* Distressed or non-arm’s-length sales can distort comparables.
* Overly distant or dissimilar properties reduce accuracy.
* Use multiple comps and apply explicit adjustments for measurable differences.

Limitations of comps across contexts
* Choice of peers/comps heavily influences results.
* Accounting policies, one-time gains/losses, and capital structure differences can skew financial comps.
* Market volatility or structural changes can make recent comps less relevant.
* Comps provide indications, not definitive valuations—combine with other approaches (discounted cash flow, replacement cost) when possible.

Practical checklist for using comps
* Define clear comparability criteria (size, geography, business model).
* Exclude anomalies and adjust for one-offs.
* Use multiple comps and report a range of implied values.
* Revisit comps frequently in fast-moving markets.
* Complement comps with other valuation or performance methods.

Conclusion
Comps are a practical, widely used tool for measuring retail performance, estimating business value, and valuing real estate. Their usefulness depends on careful selection of comparable items, appropriate adjustments, and awareness of limitations. When applied thoughtfully and combined with other methods, comps provide clear, actionable insight into performance and value.