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Ron Egan, CFA, classifies firms in the transportation industry in peer groups that include airlines and bus operators. Egan learns that one of the airlines, Acme, derives half its revenue from its Acme Bus Lines subsidiary. Egan adds Acme to his peer group for bus operators while continuing to include Acme in his peer group for airlines. Is Egan’s treatment of Acme appropriate?

A Yes.

Peer groups should include comparable companies with similar business activities. An analyst can appropriately include a company in multiple peer groups if the company’s business activities are comparable to firms in more than one peer group.

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