How to Screen for Value Characteristics

How to use the screener to find companies exhibiting structural value characteristics through book-value, earnings, and pricing observations — and how to read the limits.

The Question

How do I find structurally underpriced companies? Value investing begins with the observation that market prices sometimes diverge from underlying fundamentals. But "cheap" is not the same as "undervalued" — a stock can be cheap because the business is genuinely deteriorating. The screener approaches value structurally, looking for combinations of accounting-relationship observations that describe where price sits relative to reported fundamentals — while also flagging the risks that often accompany apparent cheapness.

What These Observations Actually Measure

Structural value here is not a prediction of future price. It is a description of measurable gaps between reported fundamentals — book value, earnings, historical multiples — and current price. The observations report relationships between numbers. They do not detect hidden assets, unrecognized value, or off-balance-sheet items, and they do not assess whether the underlying business is sound.

The screener's value interpretations combine different angles on this gap. Book-value discount looks at price relative to accounting equity. Graham-style valuation combines earnings and book value into a classical benchmark. Valuation compression looks at multiples relative to their historical range, with a separate reversion-risk check.

Key Observations

Below Book Value (legacy typeKey: asset-play)

What it measures: Price-to-book ratio inverted and scaled. Score is 100 when P/B is 0, 50 when P/B equals the scale midpoint, 0 when P/B reaches the scale parameter (default 2.0). Book value is the accounting figure from the balance sheet — it includes intangibles, goodwill, and other non-cash items, and is not the same as tangible asset value or liquidation value. The observation does not detect undervalued real estate, off-balance-sheet assets, or other Lynch-style 'asset play' characteristics.

Data source: Current price-to-book ratio from market price and book value per share.

Graham Number

What it measures: A valuation benchmark inspired by Benjamin Graham's framework, combining earnings per share and book value per share into a single fair-value estimate. When a stock's price sits significantly below its Graham Number, it meets a classical quantitative value criterion.

Data source: Calculated from earnings per share and book value per share using the Graham formula.

Valuation Compression

What it measures: Whether the company's valuation multiples have contracted over time. Compression can indicate increasing market skepticism — but it can also flag potential entry points if the skepticism is excessive relative to the actual business trajectory. The observation reports the trajectory of multiples, not the reason for it.

Data source: Historical valuation multiples compared to current levels.

Interpretations That Emerge

Below Book Value With Balance-Sheet Support

Constituent observations: Below Book Value, Current Ratio (Industry-Benchmarked), Equity Ratio (Industry-Benchmarked, NOT debt-to-equity)

What emerges: Price trades below book value while liquidity and equity-funding ratios are adequate. The Below Book Value observation indicates the market price is below the accounting equity figure. The current ratio confirms short-term liquidity is adequate. The equity ratio confirms the asset base is not predominantly debt-funded. Together these describe a stock trading at a book-value discount with balance-sheet support — not a Graham-tradition deep-value diagnosis or a measurement of intrinsic value.

Limits: A book-value discount can persist indefinitely. The interpretation does not measure tangible or liquidation value, predict whether any discount will close, identify catalysts, or assess business viability.

Valuation Compression Risk

Constituent observations: Valuation Compression, Earnings Reversion Risk, Growth Consistency

What emerges: A counterweight to the value interpretations. It identifies companies where valuation has been compressing and where the compression may be justified by earnings reversion risk or inconsistent growth. When valuation compression coincides with fundamental deterioration observations, the apparent "cheapness" may reflect legitimate market assessment rather than opportunity.

Limits: Not all valuation compression is warranted. Sometimes the market over-corrects, creating value opportunities even in companies facing temporary difficulties. This interpretation flags risk, not certainty.

Using the Screener

How do you find companies that meet a classical value criterion?

Select Graham Value Position to find companies trading favourably relative to the Graham Number with validated earnings quality and an equity-funded balance sheet. This is the most rigorous quantitative value filter available, grounded in the classical Graham framework.

To find the most extreme book-value-discount situations, use Below Book Value With Balance-Sheet Support instead or in combination. Companies passing both interpretations trade favourably on both book value and the Graham Number while maintaining balance-sheet support — the deepest structural value positions the screener can identify.

What if you want to separate genuine value from value traps?

Select your preferred value interpretation (Graham Value Position or Below Book Value With Balance-Sheet Support) then check the results against the Valuation Compression Risk interpretation. Companies that show value characteristics without triggering valuation compression risk are more likely to represent genuine opportunity rather than value traps — though this remains a structural observation, not a prediction.

Boundaries

What can value observations not tell you?

Value observations describe the relationship between a company's price and its measurable financial characteristics. They do not determine whether a stock is a good investment. A stock can be structurally cheap and remain cheap, or become cheaper, for extended periods.

Value screening cannot identify catalysts — the events or changes that cause the market to reassess a stock's price. Without a catalyst, value characteristics are a structural observation with no timeline for resolution.

None of these observations detects hidden, unrecognized, or off-balance-sheet asset value. Book value is the accounting figure from the balance sheet; the screener works with that figure, not with what the underlying assets might be worth in other uses.

These observations also cannot distinguish between companies that are cheap because the market is wrong and companies that are cheap because the market correctly perceives problems that are not yet fully reflected in the financial statements. Qualitative judgment about the business, its management, and its competitive position remains essential.