How to Value a Stock
Using valuation multiples to determine if a stock is cheap or expensive.
Valuation is the process of determining what a company is worth and whether its current stock price represents a good deal. There is no single "correct" valuation — different investors use different frameworks depending on the company and industry.
Common valuation multiples
P/E Ratio (Price-to-Earnings) Compares the stock price to earnings per share. A P/E of 15 means investors pay $15 for every $1 of earnings. - Below 15: Potentially undervalued (value territory) - 15–25: Moderate/average - Above 30: High growth expectations priced in - Negative: Company is unprofitable — use P/S instead
P/S Ratio (Price-to-Sales) Useful for companies that aren't yet profitable or have volatile earnings. A P/S under 2 is generally considered attractive, but varies by industry and growth rate.
P/B Ratio (Price-to-Book) Compares market cap to book value (accounting value). A P/B below 1 means the stock trades for less than the company's accounting value — a classic Benjamin Graham signal.
EV/EBITDA (Enterprise Value to EBITDA) The most comprehensive multiple because it accounts for debt and cash. It allows fair comparison between companies with different capital structures. Lower is generally better.
Cash flow-based valuation
FCF Yield Free cash flow divided by market cap. A yield of 5%+ means the company generates meaningful cash relative to its price. Compare to bond yields for context.
Earnings Yield The inverse of P/E. An earnings yield of 6.7% (P/E of 15) can be compared to the 10-year Treasury yield to assess whether stocks are cheap relative to bonds.
How to use them on MetricSide
The Valuation tab shows all these multiples with historical context. Look at the trends — is the P/E expanding (getting more expensive) or contracting (getting cheaper)? Cross-reference with growth: a high P/E can be justified by high growth rates.