Series 79 practice questionmediumComparable Company Analysis
A company’s EV/EBITDA multiple is significantly lower than the peer median. Which explanation is most plausible?
- AIt has higher growth prospects
- BIt has lower margins or higher risk✓ Correct answer
- CIt operates in a high-barrier-to-entry segment
- DIt has recent upward revenue revisions
Explanation
Why B — It has lower margins or higher risk
Lower margins or higher risk typically result in lower valuation multiples. Assuming a lower multiple always signals undervaluation could lead to misguided conclusions.
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