Separately, the independent trader and blogger Brian Johnson late last month built a complex "stock screen" designed to find high-value companies, including criteria such as a price-to-cash-flow ratio
of less than 10, a price-to-sales ratio of less than one and a price-to-book ratio of less than two.
The price-to-cash-flow ratio is a particularly valuable tool when earnings are not a good indicator of value--as is the case with most technology funds or funds that specialize in other industries where companies typically have large up-front expenses.
These include the price-to-earnings ratio, the fund's overall holdings, the price-to-book ratio and the price-to-cash-flow ratio.
On the other hand, growth investors specialize in hot or emerging markets and companies with high P/E, price-to-book and price-to-cash-flow ratios.
Typically, these stocks have high P/E ratios, high price-to-book ratios and high price-to-cash-flow ratios as well as extremely high growth rates.
Companies are selected using the AlphaDEX method, taking into account growth factors such as share price performance, revenue growth, price-to-sales ratio as well as value growth factors, such as price-to-book and price-to-cash-flow ratios
, and return on capital.
The big institutional players, according to surveys by Merrill Lynch, are typically influenced to buy or sell based on earnings surprises, returns on equity, analysts' earnings revisions, price-to-cash-flow ratios
, and earnings momentum.
Price-to-earnings and price-to-cash-flow ratios
are common gauges of value.