What could be considered a flaw with using public comps?

Using public comparables as a valuation method can present flaws, particularly in terms of market sentiment and behavioral finance. The selected answer highlights that comparisons can be emotionally driven by market trends, which reflects the reality that market conditions, investor sentiment, and external factors can heavily influence stock prices. Consequently, companies may be overvalued or undervalued based not on intrinsic performance but rather on prevailing market emotions, trends, or fads. This emotional volatility can lead to distorted valuations when relying solely on public comps, as they may not accurately reflect a company's true operational performance.

The other options do not capture the inherent complexities and challenges associated with public comparables. For instance, stating that public comps are universally reliable across all companies overlooks the fact that different industries, sectors, and even companies within the same industry can exhibit vastly different business models, risk profiles, and growth potentials that may not be reflected in simple comparisons. Similarly, asserting that valuations are often very stable misrepresents the inherent volatility that can exist due to market fluctuations, economic cycles, or specific events affecting particular companies or sectors. Lastly, claiming that public comps provide guaranteed accuracy for small companies fails to recognize that smaller firms often lack sufficient market data or comparables, making it challenging to derive reliable valuations