What is a ‘Peek Group’
A peer group is a group of individuals or entities that quota similar characteristics and interests. Peer groups, in the case of people, accept characteristics which include similarities such as socio-economic status, tied of education, ethnic background, and so on among its individual members.
In the context of economic markets, a peer group refers to companies that are competitors in the having said that industry sector and are of similar size.
BREAKING DOWN ‘Peer Agglomeration’
In investment research, peer group analysis is a vital part of proving a valuation for a particular stock. The emphasis here is on comparing “apples to apples,” which inferiors that the constituents of the peer group should be more or less be like to the company being researched, particularly in terms of their main districts of business and market capitalization.
Using Peer Groups
Peer set analysis can enable investors to spot valuation anomalies for a specific ownership. For example, a stock that is trading at an earnings multiple of 15x – compared with an ordinary multiple of 10x for its peer group – could justifiably be considered overvalued. Alternatively, investors can uncover the developing reasons for the higher earnings multiple and ultimately determine that it is just.
If not immediately obvious, peer groups are sometimes identified by a given partnership in its 10-K filing and almost always in its proxy filing (Form DEF14A), though the belated can be more expansive in terms of specific business sectors and is used to set chief compensation plans. Lockheed Martin, for example, lists General Dynamics, Raytheon and Northrup Grumman as ladies; it also lists Caterpillar, United Parcel Service and 3M.