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Independent Peer Groups & Clones
Benchmarking means comparing one's
self to other companies/stocks. Markets change and companies change, so your
peers and clones today may not be the same in a few years.
TRADITIONAL APPROACHES TO PEER GROUP ANALYSIS RELY HEAVILY ON
INDUSTRY. While these techniques have valid applications, DeMarche Clone
Analysis improves on this process by focusing on factors that are more
reflective of a buy-side investment manager and your competitors for capital.
DeMarche Clone Analysis is based on 30+ years of investigating and
evaluating institutional investors. Our goal is to narrow the universe of
10,000 stocks to a handful of companies that are most like yours based on
industry, financial and growth factors. These companies are your true
competitors for capital because they are most like yours in the eyes of
institutional investors.
DEMARCHE CLONE UNIVERSE
We narrow the universe further to create your DeMarche
Clone Group, which is comprised of the companies most similar to yours when
combining your financial, growth and industry peers. We tighten the constraints
and parameters in order to assemble a group of Company Clones.
APPLICATIONS OF DEMARCHE CLONE ANALYSIS
Identifying your true competitors
for capital provides a powerful tool for making strategic
decisions about your company. Some of the applications of
this information are noted below.
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Evaluate performance |
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Benchmarking
managment and company progress |
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Benchmarking for executive compensation |
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Basis for P/E analysis |
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Institutional investor targeting |
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Better database for
researching corporate finance decisions |
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Cost of equity capital |
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Stock splits |
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Stock repurchase |
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Capital structure |
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Dividend policy |
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Relative valuation |
BUILDING A CLONE UNIVERSE
Your Clone Universe is made
up of your company's financial, growth and industry peers.
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FINANCIAL PEERS |
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Financial peers are based on growth/value,
aggressive/defensive and market capitalization characteristics. Value stocks
generally have higher relative book-to-price, sales-to-price and cash
flow-to-price ratios than growth stocks. Growth-oriented stocks generally have
higher valuation ratios and typically exhibit higher than market earnings and
dividend growth.
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VALUE TO GROWTH SPECTRUM
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Value Stocks
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Factor
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Growth Stocks |
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High
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Book-to-Price
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Low
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High
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Sales-to-Price
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Low
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High
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Dividend Yield
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Low
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High
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Cash Flow Yield
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Low
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Low
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Dividend Growth
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High
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Low
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Asset Growth
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High
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Low
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Earnings Growth
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High
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Low
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Relative Price Strength
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High
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Low
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DeMarche Growth Rating
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High
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We have also identified investors' tendencies to be
aggressive or defensive in the way they construct portfolios. Aggressive stocks
are more volatile with high debt to equity, wide trading ranges, and high
earnings variability. Defensive stocks are larger, have higher profit margins
and higher cash flow and dividend yields.
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AGGRESSIVE TO DEFENSIVE SPECTRUM
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Aggressive Stocks
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Factor
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Defensive Stocks
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High
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Trading Range
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Low
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High
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Share Turnover
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Low
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High
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Market Risk
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Low
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High
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Earnings Variability
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Low
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High
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Non-Market Risk
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Low
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Low
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Market Cap Size
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High
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Low
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Payout Ratio
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High
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Low
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Economic Return
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High
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Low
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Cash Flow Yield
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High
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Low
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Dividend Yield
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High
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Low
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Profit Margin
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High
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GROWTH PEERS |
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Growth Peers
are based on the IBES Long-Term Expected Growth Rate,
which is the annualized EPS over the next three to five
years. Trailing EPS growth, growth in net income, sales
and dividends may also be considered. |
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INDUSTRY PEERS |
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Industry peers can be defined on a sliding
scale. In the narrowest sense, industry peers are companies that are competing
in the same marketplace. In the broadest sense they are companies that have
similar sensitivities to various macroeconomic factors. |
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