Market approach is a method of estimation the value of a company. Investor estimates the value based on fair market value, reviewing actual transactions of that and comparable companies. It also uses prices of publicly traded stocks. Unfortunately less then 1% of the companies is publicly traded. Finding fair price can be then difficult.
The most common methods in market approach are:
- Guideline Transaction Method - prices of similar companies recently sold
- Guideline Public Company Method - prices of similar companies publicly traded
Attention should be paid to sales and revenues. Two similar companies can have products in different phases of the cycle. In such event comparison can be not relevant.
- Vazquez, C., Rivier, M., & Pérez-Arriaga, I. J. (2002). A market approach to long-term security of supply. IEEE Transactions on power systems, 17(2), 349-357.
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