Value Factor
How cheap a stock looks relative to its fundamentals — earnings, book value, sales, EBITDA.
Definition
The value factor is a measurement of how much the market is paying for a company per dollar of underlying business — earnings, book value, sales, or operating cash flow. Lower multiples mean the stock is cheaper relative to fundamentals, which historically correlates with higher long-run returns.
The factor traces back to Benjamin Graham and David Dodd's Security Analysis (1934), the founding text of value investing. It was later formalized in the academic literature as the HML (High-Minus-Low book-to-market) factor in Fama and French's three-factor model (1993), which showed that cheap stocks outperformed expensive stocks by a statistically significant margin over multi-decade periods.
Common value metrics include the price-to-earnings ratio (P/E), price-to-book (P/B), price-to-sales (P/S), and enterprise-value-to-EBITDA (EV/EBITDA). Each captures the same underlying intuition — what does this dollar of stock buy you in business fundamentals — through a different lens.
How QScoring uses it
QScoring's value category averages four metrics: P/E (TTM), P/B, P/S, and EV/EBITDA. Each is z-scored against the stock's sector with the sign inverted (lower raw multiple → higher score). Negative values from loss-making companies or distressed book values get a fixed low score rather than being thrown out. The value section of the methodology documents the known weaknesses, especially around buyback-driven book-value distortions.