How to find competitors of a public United States company with other proxies besides P/E ratio? Someone told me look at companies with similar P/E ratios, but sometimes the P/E is N/A and it doesn't work.
Let me get this straight.
You are attempting to find a competitor of a public company by looking companies with similar P/E ratios?
This can only fail.
P/E ratio tells nothing about the sector a public company operates in. For example, many steelmaking companies have a low P/E ratio today. Oil companies also have a low P/E ratio. Yet, they are not competitors.
P/E ratio is a one-dimensional quantity. Companies in the same sector often (but not always) have similar P/E ratios, but the converse is not true: companies with similar P/E ratios are not always in the same sector.
How I find competitors of a public company:
- Try to understand what the company does. If I can't understand it, the company is uninteresting, I will not invest into it, and thus I will stop right there the attempt to find competitors. The annual report of the company helps here a lot. Most annual reports have a distribution of the sales. For example, let me pick Canon. Its annual report says office business unit is 47.4% of its revenue and imaging systems unit is 22.5% of its revenue. There are also some other less important businesses.
- Then, for each of the activities of the company, try to find other companies engaged in similar activities. For example, office printers are made by Xerox too, and HP also makes office printers. Thus, Canon primarily competes with Xerox and HP, although HP has computer business that Canon does not have. Also, Canon makes imaging products that are made by Nikon and Sony too. So, it could be claimed that Nikon is a competitor, and it also could be claimed that Sony is a competitor. However, these competitors are distant: Nikon makes photolithography equipment too and Sony is a generic consumer electronics company that makes a lot more than just imaging products.
In the second step, Google and Wikipedia are your friends.
The P/E ratio and other similar ratios (P/S, P/B, EV/EBIT) should be used only after finding the competitors, to analyze which of the competing companies (if any) to include in your portfolio.
For same-industry company comparisons there are P/E ratios, P/S ratios, gross profit margins, and net profit margins. And there is the debt-to-equity ratio.
Now the P/S ratio might be of interest if a company has no net income due to one-time charges. But a high gross-margin will increase the P/S ratio or a low gross-margin will reduce the P/S ratio such that margins give better information about the company.
A low debt-to-equity ratio can indicate an established company not at risk of bankruptcy or can indicated a development-stage company that is well funded.