Peer Group

What is a 'Peer Group'

A peer group is a group of individuals or entities who share similar characteristics and interests. Peer groups, in the case of people, have characteristics which include similarities such as socio-economic status, level of education, and ethnic background and so on amongst its individual members.

In the context of financial markets, peer group usually refers to companies that operate in the same industry sector and are of similar size.

BREAKING DOWN 'Peer Group'

In investment research, peer group analysis is a vital part of establishing a valuation for a particular stock. The emphasis here is on comparing "apples to apples," which means that the constituents of the peer group should be fairly similar to the company being researched, particularly in terms of their main areas of business and market capitalization.

Peer group analysis can enable investors to spot valuation anomalies for a specific stock. For example, a stock that is trading at an earnings multiple of 15 – compared with an average multiple of 10 for its peer group – could justifiably be considered to be overvalued.

RELATED TERMS
  1. Peer Perform

    An investment rating used by analysts when given security is ...
  2. Industry Group

    A classification method for individual stocks or companies, usually ...
  3. Group Banking

    A plan offered by banks that generally provides incentives for ...
  4. Comparable Company Analysis - CCA

    A process used to evaluate the value of a company using the metrics ...
  5. Market Average

    A measure of the overall price level of a given market, as defined ...
  6. Group Health Insurance Plan

    An insurance plan that provides healthcare coverage to a select ...
Related Articles
  1. Retirement

    Peers: Your Secret Weapon for Retirement Savings?

    Studies show when individuals see colleagues and peers saving, they're more apt to save more too. It's healthy competition, so see if it motivates you.
  2. Stock Analysis

    Should You Buy Apple Stock Right Now? Here's How to Decide (AAPL)

    Find out how to analyze Apple stock. What factors should investors consider? Learn how to determine how much Apple shares are worth.
  3. Financial Advisors

    How Financial Advisors Can Learn from Their Peers

    Advisor study groups can be a big help in building a top practice. Here's a guide to creating one.
  4. Professionals

    Common Features

    CFP Online Study Guide Common Group Disability Insurance features
  5. Term

    How Market Segments Work

    A market segment is a group of people who share similar qualities.
  6. Markets

    Relative Valuation Of Stocks Can Be A Trap

    This method of valuing a company can make it look like a bargain when it is not.
  7. Professionals

    Group Life Insurance

    Group Life Insurance
  8. Mutual Funds & ETFs

    Capital Group: Investment Manager Highlight

    Discover Capital Group, one of the largest but least-known global asset managers. Learn about Capital Group's 85-year history of steady returns to investors.
  9. Professionals

    Group Life Insurance: Common features

    Group Life Insurance: Common features
  10. Active Trading Fundamentals

    Analyzing Apple's Return on Equity (AAPL)

    Learn about Apple's return on equity (ROE) in fiscal 2015, and find out how net profit margin, financial leverage and asset turnover impact ROE relative to its peers.
RELATED FAQS
  1. What is the difference between an industry and a sector?

    The terms industry and sector are often used interchangeably to describe a group of companies that operate in the same segment ... Read Answer >>
  2. What does the 'FIG' at an investment bank refer to?

    The 'FIG' at an investment bank usually refers to the financial institutions group - a group of professionals that provides ... Read Answer >>
  3. What are the different groups involved in corporate governance?

    Learn about the challenges inherent to defining and executing corporate governance, and understand why different groups work ... Read Answer >>
  4. Which other sectors have similar risks and benefits to the Internet sector?

    Sharing characteristics that are similar to the Internet sector are mobile telephony, mass communication, stock markets and ... Read Answer >>
  5. When does a growth stock turn into a value opportunity?

    Learn how fundamental analysts use valuation measures, such as the price-to-earnings ratio, to identify when a growth stock ... Read Answer >>
  6. What's the difference between a mutual fund and a hedge fund?

    These two types of investment products have their similarities and differences. First, the similarities: Both mutual funds ... Read Answer >>
Hot Definitions
  1. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  2. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  3. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  4. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  5. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  6. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
Trading Center