Is P/E Really the Best Tool for Picking an Undervalued Stock?

In an interview with Wesley Gray, author of the book Quantitative Value, Fool editor and analyst Brendan Byrnes asks Gray to elaborate on the best valuation metric to use in evaluating a company's stock.

Gray discusses a study he performed with author Jack Vogle in which the two analyzed different valuation metrics. The conclusion may surprise you.

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Read/Post Comments (5) | Recommend This Article (6)

Comments from our Foolish Readers

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  • Report this Comment On February 24, 2013, at 1:55 PM, MARKETSURFER wrote:

    I couldn't understand him at all. He was saying something about "EV or something like that over enterprise value is the best metric." Can someone please let me know what he was saying was the best metric. I just couldn't understand him at that crucial point in the video. Thanks.

  • Report this Comment On February 24, 2013, at 4:08 PM, jcordwell wrote:

    I agree that the crucial metric was lost by poor enunciation. Sounded like EV over total price ratio. Which of course sounds incomprehensible. Maybe the Motley Fool presenter should summarise the main points in conclusion or a typed sub title should appear. But well done Mötley Fool for trying to teach us all how to be rich!

  • Report this Comment On February 24, 2013, at 5:00 PM, shamapant wrote:

    EBIT/Total Enterprise Value is what he said i think.

  • Report this Comment On February 24, 2013, at 5:24 PM, TMFCrocoStimpy wrote:

    If these kinds of metrics are of interest to people, I highly recommend his book mentioned above (Quantitative Value). All metrics come with caveats that help to understand when it is good to use them, and when it is bad, and the author does a good job in describing all the different factors they examined and how then came to the factors that they use. As an added benefit, they have a website with a screener if someone is simply looking to cut to the chase :)

    -Xander (TMFCrocoStimpy)

  • Report this Comment On February 25, 2013, at 10:33 AM, TMFNiner wrote:

    Hi all,

    As shamapant said, Wes cited EBIT/Total Enterprise Value as what he found to be the most robust valuation metric. Sorry about the poor audio there.

    Thanks for watching!

    -Brendan

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