Daniel Miller and Jason Robinson on Their Valuation Criteria


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The valuation criteria we use when selecting a stock investment with strong underlying fundamentals is based on a number of ratios (mostly price ratios).

These ratios and the benchmarks we use to screen them against are generally as follows:

 

1. Current P/E < 12
2. Current P/E < industry average
3. Forward P/E < 15
4. Price/Sales < 2
5. Price/Sales < ind. avg.
6. Price/Book < 2
7. Price/Book < ind. avg.
8. Price/Cash Flow < 10
9. Price/Cash Flow < ind. avg.
10. PEG (5 year) < 1
11. PEG (5 year) < ind. avg.
12. Book Value/Share > 5
13. Book Value/Share > ind. avg.
14. Enterprise Value/EBITDA < 10
15. Enterprise Value/Revenue < 2

If a stock passes most of these criteria, as well as exhibiting overall healthy
fundamentals in the BeanScreen, we will strongly consider taking a position (using
Buy Limits). In addition, we often ask the TA experts on the StockTwits stream
where they see long- and short-term support levels. This may help us in finding an
optimal entry point when placing our Buy Limit.

Source: Chapter 7 – The Bean Screen by Daniel Miller and Jason Robinson, @wallstreetbean

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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