Value Analyzer: How to assess the value of stocks

Warren Buffet once said he learned an important lesson from Benjamin Graham, the father of value investing: “Price is what you pay; value is what you get.” His point? Looking only at the price of a security isn’t good investing. Buffet told CNBC in an interview last year that if investors don’t delve into company fundamentals and business performance, they’re gambling and not investing.

“When I buy something,” he explained, “it’s the business I look at.”

In other words, determining the company’s value is key to making a more informed investing decision. That constitutes one of the basic tenets of value investing, an approach based on identifying stocks that are undervalued relative to their intrinsic worth. Value investors like Graham and Buffet look for companies with strong fundamentals, but with low price-to-book and/or price-to-earnings ratios.

So how can you identify value investing opportunities? Qtrade Investor has teamed up with Trading Central to bring you the Value Analyzer tool, which puts the essential metrics of value investing at your fingertips.

Want to explore our Value Analyzer tool? Log in to your Qtrade Investor account and click on Research > Value Analyzer.

Value Analyzer at a glance

Are you fishing for investing ideas? The Value Analyzer tool can help you reel in ideas through its Pre-Screened Value Stocks. Grouped by sectors, Pre-Screened Ideas present in one click the average annual rate of return estimate over a five-year horizon, for dozens of stocks. This estimate is based on a projected earnings per share (EPS) growth rate. The ideas screen features a pull-down menu that includes stocks listings from Canada and the U.S.

Suppose you want to find the most undervalued stocks on the TSX. You’ll find the answer through the tool’s Value Screener tab. Search criteria comprise ten categories, such as valuation, earnings growth, revenue growth, dividend yield, and price-to-book ratio. So, if you select the TSX search option from the pull-down menu and then choose “Under Valued” from the Valuation criteria, the Value Screener will display a list of the most undervalued stocks. Results are arranged from most to least undervalued stocks so that the best value investing picks appear on top of the screen.

Popular value metrics in one screen

What if someone tipped you off about an undervalued stock and you’d like to verify that information? All you have to do is go to Value Lookup and type the company name or symbol. From price-to-earnings and price-to-book ratios to estimated EPS growth, Value Lookup captures the key data that value investors usually rely on.

On the Value Lookup screen, you’ll also find revenue, dividends and earnings history as well as a quick summary of the company’s annual financial data. A Value Graph chart shows the stock price compared to its fair value. Stock prices are displayed chronologically over a ten-year period that includes the most recent price. The tool gives you the freedom to base the stock’s estimated rate of return on any timeline you choose.

But there’s more to value investing than ratios and numbers. As Buffet pointed out, understanding the entire business is pivotal in value investing. One way you can do that is to compare company fundamentals against those of the competitors. That’s what the Value Analyzer tool can help you do, so that you paint a more comprehensive investment picture.

To learn more about value investing, read our article Is it time for a return of value investing?

Resources

Buffet, Warren. “Buffett: Just looking at the price is not investing.” CNBC. February 26, 2018. https://www.cnbc.com/video/2018/02/26/buffett-just-looking-at-the-price-is-not-investing.html