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. Comparable Company Analysis - CCA

    A process used to evaluate the value of a company using the metrics ...
  4. Group Health Insurance Plan

    An insurance plan that provides healthcare coverage to a select ...
  5. Peer Review

    A process by which one's colleagues assess the quality and accuracy ...
  6. Group Term Life Insurance

    A type of insurance coverage offered to a group of people. This ...
Related Articles
  1. Trading

    Peer Comparison Uncovers Undervalued Stocks

    Learn how to put one of the top equity analysis tools to work for you.
  2. Financial Advisor

    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.
  3. Investing

    How Market Segments Work

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

    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.
  5. Investing

    The Future Of Banking Is Now On Sale

    The initial public offering class of 2014 was surely an elite group. 275 companies raised a combined $85 billion, the highest amount since 2000. High-profile companies such as Alibaba Group Holding ...
  6. Insights

    What is Comparable Company Analysis?

    Investors that use comparable company analysis to evaluate companies compare the metrics of similar businesses operating in the same industry.
  7. Managing Wealth

    How To Recommend A Stock

    Here are the nuts and bolts of performing a thorough analysis and learning how to recommend a potentially lucrative stock.
  8. Investing

    Top Reasons IPO Valuations Miss The Mark (MS, ZNGA)

    The costly services of investment banks don’t necessarily guarantee accuracy in IPO pricing.
  9. Markets

    Analyzing American Airlines’ Return on Equity (AAL)

    Learn about American Airlines' return on equity (ROE). Find out why American's ROE is now positive and how financial leverage impacts ROE relative to peers.
  10. Personal Finance

    5 Things People Buy Because Of Peer Pressure

    Peer pressure always affects people's purchasing decisions. Find out the products that benefit most from it.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. How does a beginner investor seek and evaluate markets and companies worth investing ...

    I'm a beginning investor. I'm struggling in learning how to research markets and companies to invest in. What are ... Read Answer >>
  4. How can an investor profit from a fall in the price of bank stocks?

    Discover the main ways to take advantage of a fall in bank stocks. Shorting stocks and buying put options can let traders ... Read Answer >>
  5. What is the financial services sector?

    Go beyond banks and credit unions to learn about the diverse group of companies that make up the fast-growing financial services ... Read Answer >>
  6. What are some common traits of undervalued stocks?

    There are a few basic factors found in companies that are worth more than their current stock price. Read Answer >>
Hot Definitions
  1. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  2. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  3. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  4. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  5. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  6. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
Trading Center