Price-to-book worth a look

[safetyfirst]

The same can be said of P/E. Exactly what is in the "E"? There may be revaluation gains, one-off asset disposals, negative goodwill etc. Earnings may also be cyclical. Blindly buying low P/E companies can be just as problematic as blindly buying low P/B companies. Nothing beats doing your own homework.

Quick question - would it mean using P/FCF is the most robust compared to P/E and P/B as FCF is much harder to manipulate and is based on cash flows rather than earnings (which can be managed) or book value (which can be written down or based on historical)?

Thanks!

i dont think valuation of a company should just be based on a simple criterion. Should consider all of p/e , p/b, p/fcf, profit margin comparison across the whole industry, integrity of management + many many other factors..

if only investing was so easy

[Musicwhiz]

That was why I said quick question. I know not to rely on just one metric.

[d.o.g.]

Quick question - would it mean using P/FCF is the most robust compared to P/E and P/B as FCF is much harder to manipulate and is based on cash flows rather than earnings (which can be managed) or book value (which can be written down or based on historical)?

Thanks!

FCF is the hardest to fake because the cash balances must tally. So if the company is faking its P&L (and therefore its balance sheet) there will often be unusual items (by type or quantity) in the statement of cash flows that are used to make the numbers tally.

However, even if the statement of cash flows appears sensible, FCF differs from year to year because of expansion, maintenance, acquisitions etc. For a company whose operations are stable you can take the average FCF over a few years. But for a company that is expanding, FCF may be very low or even negative.

[Big Toe]

A company of longer track record would be easier to figure.
If it can generate good free cash flow for nearly all its years in operation and pays dividends without fail,
then it maybe worth looking into.

Earnings is subjective, many a times, companies are counting the chicks before they are hatched just to make earnings look good.
I.e. Biological assets, concessions to operate power plants/etc