Peer Group

AAA

DEFINITION of 'Peer Group'

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.

INVESTOPEDIA EXPLAINS '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. Rich Valuation

    An asset that is being valued by investors at a very substantial ...
  2. Peer Review

    A process by which one's colleagues assess the quality and accuracy ...
  3. Peer Perform

    An investment rating used by analysts when given security is ...
  4. Intrinsic Value

    1. The actual value of a company or an asset based on an underlying ...
  5. Negative Option Deals

    A dubious business practice that involves supplying a typically ...
  6. Drip Pricing

    A pricing technique in which only part of a product or service’s ...
RELATED FAQS
  1. What is the average price-to-earnings ratio in the chemicals sector?

    The price-to-earnings ratio (P/E) is an important valuation metric used in fundamental analysis. It tells investors how much ... Read Full Answer >>
  2. For what types of investments is the payout ratio the most relevant?

    The payout ratio is most relevant for investments that pay out dividends to shareholders. The payout ratio indicates the ... Read Full Answer >>
  3. How does the use of International Financial Reporting Standards (IFRS) affect key ...

    While much has been achieved since 2002 in convergence between international financial reporting standards (IFRS) and U.S. ... Read Full Answer >>
  4. How will consumer packaged goods companies' stocks react to changes in oil prices?

    The stock prices of consumer packaged goods companies should react favorably to any significant decline in oil prices. Lower ... Read Full Answer >>
  5. To what extent will changing fuel costs affect the profitability of the airline industry?

    Fuel costs represent one of the biggest expenses for the aerospace and airline industries. On average, fuel costs account ... Read Full Answer >>
  6. What debt to equity ratio is common for a bank?

    The average debt-to-equity ratio for retail and commercial U.S. banks, as of January 2015, is approximately 2.2. For investment ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    Can't Get A Bank Loan? Turn To Your Neighbor

    Peer-to-peer lending can be an inexpensive way to gain access to credit when banks are restricting lending -- but you need to understand the entire deal first before jumping in.
  2. Professionals

    Financial Professionals: The Benefits Of Joining An Association

    Make a name for yourself among your industry peers by joining a professional association.
  3. Options & Futures

    Lending Clubs: Better Than Banks?

    If you need to borrow money and your credit is making it tough, this new option may be just what you're looking for.
  4. Options & Futures

    Peer-To-Peer Lending Breaks Down Financial Borders

    Banks are no longer the only option for a loan - the P2P lending system operates without them.
  5. Investing

    Peer Comparison Uncovers Undervalued Stocks

    Learn how to put one of the top equity analysis tools to work for you.
  6. Investing

    What A Rate Hike May Mean For Stocks

    By the end of the year, investors will likely be contending with the first Federal Reserve (Fed) rate hike in nearly a decade.
  7. Fundamental Analysis

    How to Calculate a Coverage Ratio

    In broad terms, the higher the coverage ratio, the better the ability of the enterprise to fulfill its obligations to its lenders.
  8. Technical Indicators

    Will These High-Flying Stocks Stay Hot in 2015?

    These 10 stocks were on fire in 2014. Will they stay hot?
  9. Fundamental Analysis

    Invest in Cancer Research with These 3 Stocks

    These cancer research stocks offer both a high ceiling and the potential to save lives.
  10. Charts & Patterns

    Should Investors Get Into Oil Now?

    Oil has enjoyed a steady climb after a violent plunge. Where is it going next, and how can investors profit?

You May Also Like

Hot Definitions
  1. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  2. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  3. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  4. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  5. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
  6. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
Trading Center