Relative valuation is a method of valuing an asset by comparing it to similar assets or companies, often using multiples like price-to-earnings (P/E) or price-to-book (P/B) ratios. This approach helps investors determine whether an asset is overvalued or undervalued based on market comparisons. In the context of preferred stock and hybrid securities, relative valuation can highlight the differences in risk and return between various securities, helping investors make informed decisions.
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