5 Stock Screening Criteria Every Value Investor Should Use

Value investing has been around for nearly a century, and the core ideas haven't changed much: find good companies trading below what they're actually worth, buy them, and wait. What has changed is the tooling. Today, you can run a screen that Benjamin Graham himself would have spent weeks calculating — in seconds.

But the results are only as good as the criteria you set. Plug in weak filters and you'll get a noisy list of mediocre companies. Use the right criteria and you'll surface a focused set of candidates worth serious research.

These are the five screening criteria that have the most analytical weight for value investors, where they come from, and what they look like in practice with real companies.

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1. The Graham Number

The Graham Number is a formula developed by Benjamin Graham to estimate the maximum price you should pay for a stock based on its earnings and book value. The formula is:

Graham Number = √(22.5 × EPS × Book Value Per Share)

The 22.5 multiplier comes from Graham's rule that a stock's P/E ratio shouldn't exceed 15 and its P/B ratio shouldn't exceed 1.5. Multiply those together and you get 22.5.

If a stock is trading below its Graham Number, it may be undervalued by Graham's standards. If it's trading well above it, the stock carries a premium the underlying fundamentals may not justify.

Example: Suppose a company has EPS of $4.00 and a book value per share of $30.00. The Graham Number would be √(22.5 × 4 × 30) = √2,700 ≈ $51.96. If the stock is trading at $40, it's below the Graham Number — potentially undervalued. If it's trading at $75, you're paying a significant premium.

In practice, screeners like valueofstock.com/screener calculate this automatically so you don't have to do the math for every company. But understanding the formula helps you interpret the results correctly.

The Graham Number is not a precision tool. It's a rough boundary — a ceiling on what you should pay, not a guarantee that anything below it is worth buying. Use it to eliminate overpriced candidates, not to pick winners.

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2. Price-to-Book Ratio Below 1.5

Graham's original framework put heavy weight on book value — the net assets of a business after liabilities. A stock trading below book value theoretically means you're buying the assets for less than their accounting value. A stock below 1.5x book value is still in reasonable territory.

The P/B ratio has its limitations. For service businesses, tech companies, or asset-light models, book value is almost meaningless — most of the value lives in intellectual property, brand, or people, none of which appear cleanly on a balance sheet. But for banks, insurance companies, industrial manufacturers, and retailers with significant physical assets, P/B is one of the most reliable value signals available.

Real examples:

• Citigroup (C) has historically traded below 1.0x book value, making it a frequent appearance on deep value screens. The question isn't whether it's cheap — it clearly has been — but whether the business quality justifies even a discounted price.
• Berkshire Hathaway (BRK.B) trades at roughly 1.3–1.5x book, which Warren Buffett himself has cited as a reasonable buy zone. He's publicly stated the company would repurchase shares when price fell below 1.2x book.

Screening for P/B under 1.5 is most powerful when combined with other filters, particularly the current ratio (below) to ensure the balance sheet is actually solid.

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3. Current Ratio Above 2

The current ratio measures short-term financial health: current assets divided by current liabilities. A ratio of 2 means the company has $2 in liquid assets for every $1 of near-term obligations. Graham required this as a minimum for the companies he considered.

Why does this matter so much? Because a company can be profitable on paper and still fail if it runs out of cash to pay its bills. The current ratio is a basic solvency check. Companies with current ratios below 1.0 are technically in a position where short-term liabilities exceed liquid assets — a yellow flag at minimum.

A current ratio above 2 is a conservative standard, but that's the point. Value investing is built on margin of safety, and financial conservatism is part of that.

Example application: A company with a low P/E and low P/B might look like a bargain — until you check the current ratio and find it at 0.8, indicating potential liquidity stress. That's not a value stock. That's a distressed company that might be cheap for the right reasons.

Note: Like P/B, the current ratio is more meaningful for some industries than others. Utilities and financial companies operate differently and may carry lower current ratios by design. Always apply this filter with sector context in mind.

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4. Positive and Consistent EPS Growth

Price and value diverge most productively when the underlying business is healthy and growing. Earnings per share growth is the most direct measure of whether a company's business is actually improving over time.

For value screens, you don't need explosive growth — you need consistency. A company that has grown EPS at 5–10% per year for the past five years has demonstrated that it can execute in different market conditions. That predictability is worth paying for.

What you're screening against: companies where earnings are flat, declining, or erratic. A low P/E ratio on a company with declining earnings is often not a value opportunity — it's a value trap. The stock looks cheap because investors have priced in further deterioration.

Positive EPS growth combined with a low P/E is the most powerful combination in value screening. It means you're buying a growing business at a price that doesn't reflect that growth.

Examples of companies with long-term EPS growth trading at reasonable multiples (historically):

• Microsoft (MSFT) — grew EPS consistently for years before its multiple expanded to reflect it
• Fastenal (FAST) — industrial distribution company with decades of steady earnings growth, often valued modestly
• Brown & Brown (BRO) — insurance broker with a long track record of quiet, consistent earnings growth

These aren't always cheap — sometimes the market has priced in the quality. But they show up frequently in quality-focused screens, and they reward patience.

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5. Low Debt-to-Equity Ratio

The debt-to-equity ratio measures how much of a company's financing comes from debt versus shareholder equity. A D/E of 0.5 means for every $1 of equity, there's $0.50 of debt. A D/E of 2.0 means the company is twice as leveraged.

Graham generally preferred companies with total debt no more than book value — effectively a D/E of 1.0 or less. The reasoning is simple: debt amplifies risk. In good times, leverage boosts returns. In bad times, it can wipe out equity holders entirely. For a value investor who's already taking on the risk of buying discounted stocks, adding balance sheet risk is unnecessary.

Low debt also gives companies flexibility. A business with no debt can weather a recession, invest in opportunities when competitors can't, and avoid the pressure of debt maturities and covenant restrictions.

Examples:

• Apple (AAPL) carries significant debt but also enormous cash reserves — net debt is near zero or negative. The gross D/E looks high; the net picture is very different.
• Paychex (PAYX) — payroll processing company that has operated with minimal debt for years, generating strong free cash flow without needing to borrow.
• NVR Inc. (NVR) — homebuilder that famously operates with minimal debt relative to peers, which is why it survived 2008 when heavily leveraged homebuilders didn't.

When screening, use D/E below 1.0 as a starting point and adjust for capital-intensive industries where some leverage is structurally normal.

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Putting It Together

Running all five criteria simultaneously will give you a short, high-conviction list. Here's what a combined screen might look like:

• Graham Number: stock price below calculated Graham Number
• P/B: under 1.5
• Current ratio: above 2.0
• EPS growth: positive over trailing 3 years
• D/E: under 1.0

In most market conditions, this combination will return fewer than 50 companies from the full universe of public stocks. That's the point. You're not looking for a large list — you're looking for a small list of high-quality candidates worth deep research.

From there, your work is to read annual reports, understand competitive dynamics, and determine which candidates have durable businesses behind the numbers.

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Run This Screen Now

You can apply all five of these criteria on the valueofstock.com screener. It's built specifically for value investors running Graham-style screens, with each of these filters available and ready to use. Start with the defaults, tighten or loosen based on market conditions, and build your watchlist from the results.

The screener does the heavy lifting. The judgment call is yours.

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Further Reading

For a deeper understanding of where these criteria come from and how Graham applied them, Security Analysis by Benjamin Graham and David Dodd is the original source. It's dense but essential for anyone serious about value investing.

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Not financial advice. This content is for educational purposes only. All investing involves risk, including the possible loss of principal. Do your own research before making any investment decision.