Value Over Hype

Four Metrics To Help You Find Value Stocks and Why It Matters

Apr 16, 2026

“In the short run, the market is a voting machine, but in the long run it is a weighing machine.” - Benjamin Graham

If you want to learn about value investing and get access to a special offer, read through this article!

If you’ve spent any amount of time in the stock market, you’ve probably heard the classic saying, "Nobody beats the market!” It’s the investor’s equivalent of a farmer telling you how much we need the rain this year. There is some truth to that saying; in fact, Stock Analysis’s CEO Kris Gunnars found in a 2024 article that 89% of active managers (investment funds who actively buy and sell stocks to try and beat the market) fail 89% of the time. It’s rare to see someone beat the S&P 500 meaningfully; it’s even rarer when someone does it for decades! However, that’s precisely what a former textile company turned holding company has done since 1996.

Berkshire Hathaway, the renowned holding company led by investment experts Charlie Munger and Warren Buffett, has achieved the remarkable feat of consistently outperforming the market. That doesn’t sound like a lot, but when calculating the month-over-month returns, Berkshire’s stock (BRKB) has beaten the S&P 500 index in 48% of the last 357 months (since its IPO). The average stock only beats the market 45% of the time in any given month. That might not seem like a lot, but that difference is massive at scale.

Although the S&P 500 had a more consistent spread of monthly returns since 1996, Berkshire experienced more returns over 6%.

To put it simply, Berkshire frequently discovered a way to outperform the market. How did they do that? By following a principle Buffet and Munger instilled in the company:

They bought companys whose stock was worth less than they actually worth, and held them forever.

The secret sauce behind Berkshire’s success? Value Investing.

If everything I just said sounded like gibberish, don’t panic! In this article I am going to break down how to find value stocks with four industry-tested methods, including one that was developed by Buffet’s mentor. Let’s jump in!

Finding Value Stocks

The art and science of value investing, in my mind, uses the same mental pathways as finding a good deal on produce, just with extra steps. You can use the right tools to find stocks that are "discounted" or "on sale" for some reason and profit from them, just as you can methodically search the grocery store for the best-priced items.

What are value stocks?

Before we get started, value stocks are stocks that are currently priced below what they’re actually worth (called their intrinsic value or fundamental value). In other words, value stocks are incorrectly viewed as worth less than they actually are.

Unlike produce, though, value investing doesn’t involve clipping coupons and knocking on squashes; it involves learning which signs to look for that tell you about what a stock should be worth. In investing and trading, we call these signs ratios, numbers that tell about the health of a company.

PEG, EBITDA/EV, Debt to Equity, and A Special Fourth

Price/Earnings to Growth, PEG

The PEG ratio, or price/earnings to growth, often serves as our starting point in identifying an undervalued stock. To break it down simply, price to earnings tells us how much someone is willing to pay for $1 of a company’s profits (earnings; we'll talk about why that matters in a separate article), and growth is the rate at which those earnings will grow in the future. PEG is the scale that balances those and tells us how “expensive” a company looks relative to how fast it’s growing. A PEG under 1 may hint that the market hasn’t priced in its growth potential yet, like finding an avocado that’s ripe but still marked down because the shelf stocker didn’t notice.

EBITDA to Enterprise Value, EBITDA/EV

Next, take a closer look at EBITDA to Enterprise Value (EV). This ratio helps you compare a company’s profits before taxes and depreciation (EBITDA) against the total cost of acquiring the entire business, including debt (also known as the company’s enterprise value). A higher EBITDA/EV suggests investors aren’t paying much for each dollar of operating income. This ratio can indicate an efficient, undervalued company that the broader market has overlooked for some reason.

Debt-to-Equity: How Risky is the Company?

The third lens, debt-to-equity, measures how leveraged (e.g., how in debt) a company is. Too much debt can turn a good deal into a financial trap, while a manageable ratio shows fiscal discipline. A common tactic companies use to grow quickly (or hide poor performance) is to borrow a lot of money at low interest rates. In prosperous times, that works, because companies can use that money to grow. However, too much debt can sink a company if it loses revenue or customers or faces a catastrophic event that it must pay for. Not all companies with low PEG and high EBITDA/EV are undervalued; sometimes they're just risky, and debt-to-equity helps us tell the difference. Think of it as the balance between borrowing wisely and gambling; a low D/E ratio means a company is managing its finances, which supports the idea that the company is being undervalued.

The Master Formula: The Benjamin Graham Formula

Finally, we can draw inspiration from Benjamin Graham, the master of value investing and Buffet’s mentor, by utilizing the Benjamin Graham formula. Graham’s equation for intrinsic value blends earnings per share, expected growth, and a margin of safety into one simple framework. It captures the essence of his philosophy: buy businesses, not tickers, and pay less than what they’re truly worth. When you plug in the numbers and find a stock trading below its calculated intrinsic value, you’ve found an undervalued stock, or at least something worth digging deeper into.

Benjamin Graham believed that a stock’s “true price” (often called a stock's intrinsic value) depended on several factors:

How much profit is generated for each share the company has (Earnings per share)
The rate at which the company is growing its earnings at (g)
The return someone could get for just lending money to a strong company (e.g., buying a AAA corporate bond, which has lower risk than buying stocks) (Y)

He also added a few constants to help anchor his formula to real life. First, the 8.5 represents the price-to-earnings of a company that is not going to grow (i.e, a growth rate of zero.) Second, he added the 2 to control how growth affects valuations by assuming every 1% of growth adds 2 points to the price-to-earnings ratio. Third, 4.4 represents the risk-free rate, the return you get from investing in government bonds, or Graham’s minimum required return to invest in something. Over the years, those numbers have changed, but the concept remains the same: by collecting the factors that affect how a rational person would look at a company, you can determine what the company is worth.

Bring It All Together

At its core, value investing isn’t about chasing the hottest narrative; it’s about patience, math, and discipline. If you can incorporate these metrics into your toolkit, you will begin to see what Buffett and Munger recognized decades ago: that the voting machine of daily price swings eventually gives way to the weighing machine of real value. And that’s where wealth compounds quietly, month after month.

A Special Gift Just for You…

Value investing with Grahams formumla is hard, which is why I’m opening a small, invitation‑only beta for GrahamTracker, my tool that automates Graham’s intrinsic value formula and margin‑of‑safety screens. I’m giving early access to 25 readers who want to help shape the tool before I open it more broadly

However, I know from experience that all that math is time-consuming. So while I was writing this article, I wanted to come up with something to help investors looking to use value investing. After toiling over it for a week, I created GrahamTracker, your companion for doing Graham Formula valuations. With GrahamTracker, all you have to do is:

Add a stock ticker you want to look at
Google the current yield on AAA bonds (seriously, just google that and copy and paste what you find into the field)
and pick how safe you want to be from the dropdown

And GrahamTracker will scrape public data for all the required information, run the Graham formula for you, and tell you whether it’s a good buy. I tried to make it as simple as possible. To celebrate this article, I am kicking off a limited, private beta of the tool. I’m giving early access to 25 readers who want to help shape the tool before I open it more broadly. You can claim your spot by filling out the Google form below!

Get Access to the Private Beta Here!

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