Building comps means choosing a peer set, computing the same multiples for each on the same basis, and then judging where the subject belongs in the range. The judgement, not the arithmetic, is the work.
The technique carries the market's mood with it. In a bubble, comps confirm bubble prices. That is why it pairs badly with itself and well with a discounted-cash-flow cross-check.
Example: Northwind Tools is compared with four tool makers trading at 11 to 16 times EBITDA. Its 31% software mix and above-average growth argue for the upper half, supporting 14 to 15 times against its actual 14.7.
Related: valuation-multiple, precedent-transactions, ev-ebitda, sum-of-the-parts, discounted-cash-flow