Finding the real value in stocks always has been difficult and subject to interpretation. Unwilling to do the due diligence necessary, many investors too often seek the simplest methods to uncover value.
Book value often becomes a key metric value seekers use to find the best bang for their investment buck. A stock trading at a price less than what its assets are worth per share would appear to represent real value, but unfortunately too often value seekers fail to ask why sellers are willing to accept what might appear to be a giveaway price.
Price-earnings ratios (P/E), however, often become the default value-finding tools on the simple premise that lower earnings multiples compared to
a company’s industry contemporaries or its own history are indications of value. This same logic applies to broad market measures like industry sectors and the market itself.