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.
* Price-to-cash-flow ratio. CPAs can also evaluate a manager's substyle by comparing a company's stock price with its cash flow for the previous fiscal year.
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.
With Lakonishok, we have looked at a variety of contrarian strategies from 1968 to 1990, and found that there is nothing special about BM as a way to identify value and growth stocks.(3) Many other ratios of price to a measure of fundamentals, such as the price-to-cash-flow ratio
, and the price-to-earnings ratio, are also good predictors of returns, generating superior performance of nearly 10 percent per year for value relative to growth stocks.
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.
On the basis of price-earnings ratios, yields, price-to-book-value ratios and price-to-cash-flow ratios
, relative to normal variations from 1926 to the present, the U.S.