CPM Investing LLC - Research Publications
Valuation Ratios
All else being equal, lower valuation ratios are more attractive for purchasing stocks. After a period of price declines on investor concerns about the future, low valuation ratios can entice investors to buy even when the future is questionable. High valuation ratios are more attractive for selling stocks. Valuations tend to be highest just prior to major stock price declines; selling when valuations are high takes advantage of this tendency.
The Price/Book (P/B) ratio indicates the relationship of the current price of all companies in the DJIA to the book value of all those companies. Book value represents the total value of a company's assets that shareholders of that company would receive if the company were to be liquidated.
The Price/Sales (P/S) ratio indicates the relationship of the price of all stocks of the DJIA companies to the total sales of those companies.
The Price/Earnings (P/E) ratio indicates the relationship of the price of the stocks of the DJIA to their most recent reported earnings.