An emerging market perspective on peer group selection based on valuation fundamentals

Abstract

The developed market literature suggests that peer group selection based on a careful selection of valuation fundamentals may improve the valuation accuracy of multiples. However, the literature does not offer an emerging market perspective in this regard. In this article the valuation performances of 16 equity multiples are investigated, based on three individual valuation fundamentals and three different combinations of these valuation fundamentals. The valuation performance of these 16 multiples is assessed in the equity valuation of South African companies listed on the JSE Securities Exchange over the period 2001 to 2010. The empirical results revealed, among other findings, that peer group selection based on a careful selection of valuation fundamentals could, on average, increase valuation accuracy of multiples by as much as 37.88%.