Trading comparables (trading comps) are valuation methods that use ratios to value a company by assuming that it should be worth similar multiples to similar listed companies.
The methodology is not greatly different to that used when analysing listed companies from the point of view of portfolio investment (especially by an analyst calculating a target price). However, the term is more often used in the context of valuing companies for transactions such as IPOs and takeovers.
Unlike with portfolio investment, the desired number is likely to be a total value rather than a per share value, but the principal behind the ratios remain the same, and the same sorts of ratios are used: revenue multiples, profit multiples (such as EV/EBITDA) and asset based (such as net asset value).
The use of trading comps requires listed peers to the company being valued: similar companies in the same industry. The multiples used in the valuation are based on those at which peers trade - the simplest technique is to simply take the average of each ratio used for a selected group of similar companies.
The main alternatives to trading comps are transaction comps and DCF valuations.