Valuation is both an art and a science. Analysts are trained to build detailed models, compare multiples, and triangulate across methods — yet even seasoned professionals can fall into subtle traps. The difference between a robust valuation and a misleading one often comes down to awareness of these pitfalls.
Here are five common mistakes that can undermine even the most sophisticated analysis — and how you can avoid them.
1. Confusing Price with Value
It’s easy to assume that the market price of a share reflects its true worth. But price is simply what buyers and sellers agree on at a moment in time — not necessarily the intrinsic value of the business.
Take real estate investment trusts (REITs), for example. They often trade at premiums or discounts to net asset value (NAV), driven as much by investor sentiment and interest rate expectations as by the underlying quality of their portfolios. A disciplined analyst must learn to distinguish between temporary market mood and long-term fundamentals.
2. Overreliance on a Single Method
No valuation method is flawless. Discounted cash flow (DCF) models can be thrown off by small assumption changes, while multiples like EV/EBITDA are only as good as the comparability of peers. Leaning too heavily on one approach risks producing skewed conclusions.
The strongest valuations are built on triangulation — combining DCFs, multiples, and asset-based approaches to paint a fuller, more balanced picture.
3. Ignoring Sector Differences
Not all sectors are created equal. What drives value in logistics is not the same as what drives value in retail. Logistics REITs might be shaped by yield compression, supply chains, and e-commerce demand, while retail assets live and die by footfall and consumer confidence.
Applying a one-size-fits-all framework misses critical nuances — and risks overlooking the very factors that will determine future performance.
4. Misjudging Key Assumptions
A model is only as reliable as its inputs. Exit yields, discount rates, and rental growth forecasts are some of the most powerful levers in valuation models. A small change in weighted average cost of capital (WACC) or exit yield can swing outcomes by millions.
Analysts who don’t rigorously stress-test these assumptions may find their valuations crumble under pressure. Sensitivity analysis isn’t just good practice — it’s essential.
5. Forgetting Optionality and Risks
Value isn’t only about the base case. Optionality in development land, lease structures, or refinancing terms can create meaningful upside. At the same time, overlooking risks — such as debt covenants, refinancing exposure, or tenant defaults — can lead to dangerous overoptimism.
A holistic valuation considers not just the most likely outcome but also the risks and optionality that shape the full distribution of potential returns.
Final Thoughts
Valuation mistakes often stem not from a lack of technical ability, but from overlooking nuance, context, and judgment. By separating price from value, diversifying methods, accounting for sector dynamics, rigorously testing assumptions, and balancing optionality with risk, analysts can build valuations that stand up to scrutiny.
Getting valuation right is more than just a technical exercise — it’s about developing the discipline to see beyond the numbers.
Want to strengthen your analysis and avoid these mistakes?
👉 Click Here to view the Article