What approach do analysts commonly use for multiples analysis?

Analysts often use the approach of considering average multiples from industry peers in multiples analysis because it allows them to benchmark a company's valuation relative to its competitors. This method provides a more standardized view of what similar companies are valued at in the market, thus offering valuable context for making investment decisions.

By assessing industry averages—such as price-to-earnings (P/E) ratios, enterprise value-to-EBITDA ratios, or other relevant multiples—analysts can identify whether a particular company is undervalued, overvalued, or fairly valued compared to its peers. This comparative analysis helps in understanding the market's expectations and the company's position within the broader industry landscape, aiding investors in making informed decisions.

This approach also accounts for current market conditions and trends, which can significantly influence multiples across an industry. It contrasts with other methods, such as directly comparing asset values or relying solely on historical performance, which may not reflect the current market sentiment or industry dynamics effectively. Consulting subjective market opinions might introduce biases that do not rely on quantitative data, making it a less reliable method for rigorous financial analysis.