Screen of the Week written by Kevin Matras of Zacks Investment Research:
The Price to Earnings ratio (or P/E) is probably the most common ratio in determining whether a company is under or overvalued.
However, the Price to Cash Flow (or P/CF) is another great ratio to do just that.
Cash, of course, is vital to a company's financial health in order to finance operations, invest in the business, etc.
And cash can't really be manipulated on the Income Statement like earnings can.
The reason why some like this measurement better than the P/E ratio is because the net income of the Cash Flow portion rightly adds depreciation and amortization back in, since these are not cash expenditures.
Whereas the net income that goes into the Earnings portion of the P/E ratio does not add these in, thus artificially reducing the income and skewing the P/E ratio.
So many analysts prefer using the Price to Cash Flow metric to judge a stock's value.
The screen I'm running today is relatively simple:
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