Comparing a stock to other stocks in its industry is a great way to pick between stocks to invest in 🚀

💡Relative ratios compare the “ratios” of 1 company to the metrics of 3-10 similar or competing companies, and can be used to calculate intrinsic value

Why “ratios”?

Well, some of the most important financial metrics are “ratios”, such as P/E ratio and debt to equity

Bloom compares companies’ P/E (price to earnings) as well as their P/S (price to sales) ratios to calculate their intrinsic value 🚀

Let’s say Tesla has a P/E ratio of 63, while its competitors’ average P/E is 20

This means Tesla stock costs way more than its competitors compared to its earnings 🤔

Meanwhile, let’s say Ford has a P/E ratio of 20, while its competitors’ average P/E is 20 🤔

This means the stock is more similarly priced with its competitors 💸

P/S, or price to sales, can be compared the same way

The reason we use both P/E and PS is to prevent one number from skewing the result too much.

Remember, you can find our intrinsic value calculator on the stock page – try it with Tesla

Next, we’ll learn about the method that Wall Street pros use to determine intrinsic value 👀