Value Factor – Comparing Valuation Metrics

Searching for Superior Valuation Metrics

May 2018. Reading Time: 10 Minutes. Author: Nicolas Rabener.


Mirror, mirror, on the wall – which is the fairest of them all?

Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments revolve around the price-to-book valuation metric, which, as the Barron’s article points out, might have some issues:

But there’s a problem with price/book: today’s economy. Price/book, perhaps the most conventional measure of value, evaluates stock prices based on a company’s book value—the worth of all tangible assets but no intangible ones…Today’s service economy is filled with companies whose biggest assets are their brands, intellectual property, or customer loyalty, which don’t show up on the balance sheet.

But as Wes highlighted not that long ago in a WSJ piece, determining if value investing is dead, really hinges on how one measures “value investing.”

In this piece, we look at the performance of various value investing screens from 2000 to 2018 across the globe to garner some more insight on how value investing has faired in recent memory. The results suggest a mixed view on value. There is no conclusive evidence that value is dead, but there is also no clear case that value has done well.


Systematic value investors face a lot of options when deciding which value metric they should utilize when constructing their portfolios. Historically, investors have focused on the price-to-book ratio, which is still the preferred metric in some sectors, e.g. REIT specialists in Europe and Asia continue to focus on premium and discount to book values as it is a very intuitive measure for identifying value in the real estate sector. However, in most sectors investors tend to focus on earnings or cashflow-based metrics. In this short research note, we will compare different value metrics across the globe and evaluate utilizing a multi-metric approach. Wes and Jack have done a