The Valuation score measures how good the current price looks relative to what the company actually earns — not whether the business itself is good. A genuinely excellent company can score poorly here if the price is too high; a genuinely mediocre one can score well if the price is low enough.
The Valuation score combines four individual measures — PE ratio, EV/EBITDA, PEG ratio, and PB ratio — into a single 0–100 figure. The exact breakdown, out of 100 points: PE contributes 40 points, measured against the sector's own median rather than a fixed universal number. EV/EBITDA contributes 25 points. PEG contributes 20 points, though this is halved to 10 points when a company's earnings are recovering off an unusually low base or otherwise volatile, since the growth figure feeding into PEG isn't reliable in those situations. PB contributes the remainder, with its exact weight — typically 20 to 30 points — varying by how capital-intensive the sector normally is, since book value means something very different for a bank than for an asset-light software company.
The most important thing to understand about this score: a lower PE produces a higher Valuation score, not a lower one. The score measures how attractively priced a stock looks, and a cheaper price relative to earnings is, by definition, more attractive — this can feel counterintuitive the first time you see it, since "low" and "high" seem to point in opposite directions.
See How Our Scores Work for the exact formula and weighting used.
Even a genuinely excellent business can be a poor investment at the wrong price — this is one of the most important, and most frequently overlooked, lessons in investing. The Valuation score exists specifically to separate this question from every other one the site asks: not "is this a good business" (that's what the other five pillars measure), but "am I being asked to overpay for it right now."
Combining four different valuation metrics, rather than relying on PE alone, also protects against a single ratio's individual blind spots — PE says nothing about debt, EV/EBITDA doesn't reveal whether the underlying growth justifies the multiple, and PB alone can be badly misleading for asset-light businesses. Together, they give a considerably more complete picture than any one of them would on its own.
A very high Valuation score is worth treating as a genuine question, not an automatic buy signal — the market usually has some reason for pricing a stock this cheaply, and understanding that reason (checking the other five pillars) is exactly what turns a screener result into real research.
The Valuation score is most useful when:
Unlike the other three components, PB's weight in the Valuation score isn't fixed — it shifts based on how capital-intensive the sector normally is. For banks, insurers, and other asset-heavy businesses, book value carries real, direct meaning, so PB gets closer to the higher end of its 20-to-30-point range. For asset-light businesses like software or certain consumer brands, where book value badly understates the real economic worth of brand strength or intellectual property, PB gets less weight — recognizing that this particular metric simply isn't the right lens for that kind of company.
Extreme PE outliers — usually a company with a temporarily collapsed earnings base rather than a genuine valuation signal — are also excluded before the sector median itself is calculated, so one distorted company can't drag the entire sector's benchmark for every peer being measured against it.
"Apex Engineering" (illustrative) trades at a PE of 11 against a sector median of 18, a correspondingly modest EV/EBITDA, and a PEG near 0.8 — comfortably below the "fair value" benchmark of 1:
Strong performance across every underlying measure, not just one, produces a score that genuinely reflects attractive pricing relative to the sector, not just a single flattering ratio.
"Coastal Shipping Lines" (illustrative) trades at a PE of just 6 — dramatically below its sector median of 15, earning near-full marks there. But its PEG comes out unfavorably given weak growth expectations, and its EV/EBITDA is only modestly discounted:
This is exactly the kind of gap the blended score is designed to catch — the striking PE figure earns nearly the full 40 points on its own, but the weak PEG and modest EV/EBITDA pull the combined total well below what the headline PE number alone would suggest.
"Northgate Software" (illustrative) scores 91 on Profitability and 88 on Growth — genuinely excellent numbers — but trades at a PE of 45 against a sector median of 24:
Reading Quality alone would suggest an outstanding company. The Valuation score reveals the other half of the picture — every single component scores near the bottom of its range, since at this price, a great deal of that quality is already being paid for. This is exactly the situation the site's separation of Quality and Valuation is designed to surface clearly rather than blur together into one misleadingly middling number.
Because the score measures how attractively priced a stock looks, and a lower price relative to earnings is, by definition, more attractive — the score is answering "how good does this price look," not restating the raw PE number itself.
No — a high Valuation score means the price looks attractive relative to earnings, but says nothing about whether the business itself is good. Always check it alongside Quality, particularly Debt Safety and Earnings Quality, before treating a cheap price as reason enough on its own.
When a company's earnings are recovering off an unusually low base, or are otherwise volatile, the growth rate feeding into the PEG calculation becomes unreliable — reducing PEG's influence in that situation prevents an unreliable growth figure from distorting the overall Valuation score too heavily.
Because book value carries genuinely different meaning across industries — highly relevant for a bank, far less so for a software company. A fixed PB weight applied everywhere would effectively compare unlike things as if they were the same.
The full formula, including exact weights for each component and how sector medians are calculated, is published on the How Our Scores Work page.