Just narrow to stocks below fair value

Screening Filters

1. Region: United States

   • Purpose: Limit the universe to U.S.-listed companies, as you originally asked about the U.S. market.
   • Rationale: Keeps results aligned with your focus and ensures consistent accounting/filing standards when comparing “fair value” via common valuation multiples.

2. Exchange: XNYS, XNAS (NYSE & NASDAQ)

   • Purpose: Restrict to the two main U.S. exchanges.
   • Rationale: These exchanges generally have better reporting standards, liquidity, and institutional coverage, which makes valuation metrics more reliable when judging whether a stock is below fair value.

3. Market Cap Category: All (mega, large, mid, small, micro, nano)

   • Purpose: Do not exclude any size of company.
   • Rationale: A stock can be undervalued regardless of size. Keeping all market caps lets you find potential “below fair value” ideas among both large blue chips and smaller companies.

4. Volume, Weekly Average Dollar Volume, Monthly Average Dollar Volume: min = 0

   • Purpose: Impose no additional liquidity filter at this stage.
   • Rationale: Your request was specifically to “narrow to stocks below fair value,” not to further restrict liquidity. Leaving these at 0 means we’re not excluding potentially undervalued ideas just because they trade less, while still being on major exchanges.

5. P/E (Price-to-Earnings, TTM): 5 to 18

   • Purpose: Target stocks with moderate, not excessive, earnings multiples.
   • Rationale:
     • A P/E above 18 often reflects growth or hype; by capping at 18, we’re biasing toward companies that the market is not richly pricing—one indicator of possible undervaluation.
     • A minimum of 5 helps avoid many distressed or anomalous situations (P/E near 0 or negative can mean losses or one-time accounting effects) that don’t reflect genuine “cheap but healthy” businesses.

6. P/S (Price-to-Sales) Ratio: max = 5

   • Purpose: Keep valuations reasonable relative to revenue.
   • Rationale: Very high P/S (e.g., >10) usually suggests the market is pricing in aggressive growth or “story stocks,” often over fair value. Capping P/S at 5 tilts you toward businesses where you’re not overpaying for each dollar of sales.

7. P/B (Price-to-Book) Ratio: max = 3

   • Purpose: Ensure price is not too high relative to the company’s net assets.
   • Rationale: A P/B above 3 can signal that the market is placing a large premium over the accounting value of assets (typical in overhyped sectors). Keeping it ≤3 focuses on companies where you’re not paying an extreme premium to book value—another classic sign of possible undervaluation, especially in asset-heavy sectors (financials, industrials, etc.).

8. P/FCF (Price-to-Free-Cash-Flow): max = 18

   • Purpose: Check valuation against actual cash generation, not just accounting earnings.
   • Rationale: Free cash flow is a strong indicator of economic value. A moderate P/FCF suggests the stock price is not too high compared to the cash the business generates. A ceiling of 18 biases toward stocks that may be underappreciated relative to their cash-earning power.

9. EV/EBITDA: max = 15

   • Purpose: Use an enterprise-value-based metric to judge cheapness across different capital structures.
   • Rationale: EV/EBITDA is widely used in valuation and deal-making. By capping at 15, we dismiss stocks trading at very rich multiples relative to operating profits. Undervalued or fairly valued companies often cluster at lower EV/EBITDA multiples compared to peers.

Why Results Match “Stocks Below Fair Value”

• Multi-metric valuation screen:
  Instead of relying on a single metric (like P/E only), these filters constrain several valuation ratios (P/E, P/S, P/B, P/FCF, EV/EBITDA) to “reasonable” or “cheap-to-fair” ranges. That’s closer to how analysts think about “below fair value”: not one magic number, but consistent cheapness across multiple lenses.

• Bias against overhyped/expensive names:
  High-multiple growth or story stocks—most likely to be above fair value—are systematically excluded by the upper bounds on all these ratios.

• Still allows quality:
  The lower bound on P/E (≥5) and focus on positive cash‑flow metrics avoids many extreme distress cases where a stock is “cheap” for a good reason (e.g., failing business), keeping the emphasis on potentially undervalued yet functioning companies.

Overall, these filters don’t “guarantee” a stock is below intrinsic value, but they are a practical, data-driven way to narrow your universe to reasonably or conservatively valued U.S. stocks that are more likely to be trading below fair value than the broader market.