Contrast relative and intrinsic valuation — when does relative mislead you?

How to answer

Relative (comps/multiples) prices a company against what the market pays for peers — fast and market-consistent, but assumes the peer set is fairly priced. Intrinsic (DCF) values the business off its own fundamental cash flows, independent of sentiment, but is only as good as your assumptions. Relative misleads in a bubble or trough: if the whole sector is mispriced, 'cheap vs peers' just means less overvalued. Strong ER uses both and explains divergences.

Key idea: Trusting 'cheap vs peers' without checking whether the entire group is mispriced — relative valuation can't catch a sector-wide bubble or trough.