Good Morning! It's the Net Tangible Book Value formula I have been talking about. Screen out anything trading above 2 times book value. I screen out stocks trading over 2 times book and over 15 times earnings. After that, I look closely at the financials to make sure they aren't puffing up the book value with a lot of goodwill and intangible assets. Once you get the net tangible book value figure, you have a better idea of actual value. From there, you can decide what you want to invest in. Doing this will help you buy stocks at a reasonable valuation. If you go strictly by earnings, you could be buying a stock that is trading at 15 times earnings but at the same time is trading at 10 times book value. Would you pay 10 times the appraised value for a house? No. So why should you do that with stocks? There aren't a lot of stocks that will add 200% to book value in any given year so you shouldn't be paying over 2 times book ever.
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