A ready-to-use value stock screener
Start with US-listed companies above $1 billion in market value, and leave out banks, insurers and REITs, which need price-to-book and funds-from-operations measures instead (the stock screener guide covers sector adjustments). Then apply these eight rules. Every threshold is a starting point to tune, not a law.
| Rule | Threshold | Why it is there |
|---|---|---|
| 1. EV/EBIT | 12× or less | Prices the whole business, debt included, after the depreciation that EBITDA ignores |
| 2. Free cash flow yield (3-year average FCF ÷ market value) | 6% or more | Cash actually produced, smoothed so one lumpy year cannot pass or fail a stock |
| 3. P/E sanity check | Trailing P/E between 0 and 20, and forward P/E no more than 25% above trailing | Drops loss-makers and flags companies whose earnings analysts expect to fall |
| 4. Debt | Net debt ÷ EBITDA 2× or less, and EBIT ÷ interest 6× or more | Room to survive a bad year without raising equity |
| 5. Return on invested capital | 5-year average 10% or more, no year below 5% | Separates businesses that earn their cost of capital from ones that are merely cheap |
| 6. Revenue stability | At or above its level five years ago, no single-year fall worse than 10% | Removes steady decliners and the most violent cyclicals |
| 7. Dilution | Diluted shares up no more than 3% over three years | A rising share count moves value from existing owners to new ones |
| 8. Cash conversion | Operating cash flow at least equal to net income, summed over three years | Earnings that do not become cash are an early sign of aggressive accounting |
Why these value investing screener criteria
Three design choices do most of the work.
Enterprise value before P/E
P/E ignores debt, so a heavily indebted company can look cheap on P/E and expensive on EV/EBIT. Starting with EV/EBIT and free cash flow yield means the first cut already accounts for the balance sheet. P/E comes in only as a check.
The forward-versus-trailing check
A stock at 8 times last year's earnings but 12 times next year's implies consensus expects profits to fall by a third. That pattern often marks a cyclical peak, where the lowest multiples appear just before earnings drop. Capping forward P/E at 25% above trailing removes most of these.
Quality before ranking
Apply rules 4 to 8 before sorting. If you rank by cheapness first, the top of the list fills with the weakest businesses, because deterioration is exactly what makes a stock cheap. What is ROIC explains how to read the return-on-capital figure, and the value trap guide covers what the other quality rules guard against.
Three variants: deep value, quality at a reasonable price, dividend value
The best screener settings for value stocks depend on which kind of value you want. Each variant replaces the core thresholds as follows.
Deep value
Very low prices relative to earnings or assets. It accepts weaker businesses but demands a stronger balance sheet, because there is less room for error.
| Rule | Deep value threshold |
|---|---|
| EV/EBIT | 8× or less |
| Free cash flow yield | 8% or more |
| Price to tangible book value | 1.2× or less |
| Net debt ÷ EBITDA | 1.5× or less |
| Return on invested capital | 5-year average 6% or more |
| Revenue | No more than 10% below five years ago |
| Dilution | Diluted shares up no more than 2% over three years |
Quality at a reasonable price
Strong, growing businesses at multiples that are fair rather than low. The valuation bar loosens; the quality bar rises.
| Rule | Quality at a reasonable price threshold |
|---|---|
| EV/EBIT | 18× or less |
| Free cash flow yield | 4% or more |
| Return on invested capital | 5-year average 15% or more, no year below 10% |
| Revenue growth | 5% a year or more over five years |
| Operating margin | Rising, or within 3 points of its 5-year average |
| Net debt ÷ EBITDA | 2× or less |
| Dilution | Share count flat or falling over three years |
Dividend value
Income from companies whose cash flow covers the payout with room to spare. A very high yield often means the market expects a cut.
| Rule | Dividend value threshold |
|---|---|
| Dividend yield | 3% to 7% (higher is a warning, not a prize) |
| Dividends ÷ free cash flow | 70% or less, 3-year average |
| Dividend record | No cut in the past five years |
| EV/EBIT | 15× or less |
| Net debt ÷ EBITDA | 2.5× or less (judge utilities against peers) |
| EBIT ÷ interest | 5× or more |
| Revenue | At or above its level five years ago |
Worked example: three candidates through the screen (illustrative)
Three fictional companies, with round made-up numbers, show how the rules catch different problems. None is a real security.
| Measure | Alder Tools | Birch Chemicals | Cedar Media |
|---|---|---|---|
| Market value / net debt ($m) | 2,000 / 400 | 3,000 / 600 | 1,800 / 1,500 |
| EV/EBIT | 10.9× | 6.0× | 10.0× |
| FCF yield, 3-year average | 6.8% | 11.0% | 11.1% |
| Trailing / forward P/E | 13.9× / 13.2× | 7.5× / 12.5× | 9.2× / 9.6× |
| Net debt ÷ EBITDA | 1.3× | 0.8× | 3.3× |
| EBIT ÷ interest | 8.8× | 15.0× | 3.0× |
| ROIC, 5-year average (lowest year) | 13% (9%) | 11% (3%) | 10.5% (8%) |
| Revenue vs five years ago | +18% | +9% | −14% |
| Diluted shares, last 3 years | +1% | 0% | +12% |
| Result | Passes | Fails rules 3 and 5 | Fails rules 4, 6 and 7 |
Birch looks cheapest on every value measure, but its forward P/E is 67% above its trailing P/E: consensus expects earnings to fall 40%. Its return on capital also dropped to 3% in one recent year. That is the profile of a cyclical near a peak. Cedar has an 11% cash yield, but net debt is 3.3 times EBITDA, interest is covered only three times, revenue has shrunk 14% in five years and the share count is up 12%. Alder is the least exciting on price and the only one that goes on to the next stage.
How to run the screen on VALYSTR's screener
The screener applies rules to metrics it carries for most listed companies and states the period behind each one. Build the screen in two passes.
- Rules it applies directly. Market cap of at least $1 billion; financial and real estate sectors excluded; trailing P/E between 0 and 20; return on invested capital of at least 10%; free cash flow margin above zero; revenue growth of at least 0%. Add forward P/E as a column and strike out any company whose forward figure is more than 25% above its trailing one. The built-in Strong Balance Sheets screen (cash covers total debt, current ratio of at least 1.5) is a stricter stand-in for rule 4.
- Checks to finish by hand. The screener's return on capital is trailing twelve months and its revenue growth is one fiscal year, so confirm the five-year records. Then work out EV/EBIT, three-year free cash flow yield, net debt to EBITDA, interest cover and the change in diluted shares from each company page (/company/AAPL shows the layout), filling in a row like the table above.
- Save the screen and re-run it each quarter after earnings season, keeping the thresholds unchanged so results stay comparable.
You can also describe the screen in words and edit the rules the screener proposes. Check how many companies drop out for missing data: a blank is not a pass.
What to do with the results
A screen finds low prices; it does not tell you whether a business is worth more. For each company that survives both passes:
- Find out why it is cheap. Read the business and risk sections of the latest 10-K and the most recent quarterly report.
- Value it. Build a DCF with a multiples cross-check, as described in how to value a stock; the stock valuation calculator is a quick first pass.
- Check what the price expects with a reverse DCF. The strongest candidates imply growth clearly below what the business has delivered.
- Write the thesis and its kill criteria with the investment thesis template.
Expect most names to drop out here. That is the process working: the screen's job was to point your research time at a short list, not to make the decision.
Build this screen in the screener
Combine valuation, growth, quality and balance-sheet rules, or describe the screen in plain words and edit the rules it proposes.
Frequently asked questions
What are the best value investing screener criteria?
A sound set combines two enterprise-value or cash-flow measures, such as EV/EBIT at or below 12 and free cash flow yield of at least 6%, with a P/E sanity check, a debt limit, a return-on-capital floor, a revenue stability test and a dilution cap. Tune the thresholds by sector and by how many results you want back.
Should a value screen use P/E or EV/EBIT?
Lead with EV/EBIT, because it includes debt and compares companies with different capital structures fairly. P/E is still useful as a second check, especially comparing trailing with forward P/E to spot expected earnings declines. Using P/E alone tends to favor indebted companies and cyclicals at peak earnings, which are two common sources of value traps.
How many stocks should a value screen return?
Enough that you can read each company's filings properly, which for most individual investors means a few dozen at most. If a screen returns hundreds, tighten the quality rules rather than the valuation ones. If it returns none, loosen one threshold at a time and note which rule was binding, rather than dropping several at once.
Why do value screens fill up with cyclical companies?
Cyclical companies look cheapest on trailing earnings when profits are near a peak, so a low P/E or EV/EBIT screen picks them up just before earnings fall. Comparing forward with trailing P/E, requiring a minimum return on capital in every year, and using average rather than single-year free cash flow filter many of them out.
Can I use the same value screen for banks and REITs?
No. Banks and insurers should be screened on price to tangible book value and return on equity, because debt is their raw material and EBIT means little for them. REITs should be screened on price to funds from operations, because depreciation understates their earnings. Run each as a separate screen with its own thresholds.