Which of the following screens would not be used by a value-orientated investor?

Question

BlackTom AI · Accepted Answer

To tackle the question, I’ll evaluate what each screen represents and how a value-oriented investor typically uses screens in stock selection.
Option A: Dividend Yield. This metric reflects income generation relative to price. Value investors sometimes consider dividends as a signal of cash return and quality, so using dividend yield can align with a value approach that favors reliable cash flows and pits price against income expectations.
Option B: PE to expected growth rate (PEG). The PEG ratio combines price, earnings, and growth expectations. Growth metrics like PEG are more aligned with growth investing themes, and a value investor often prioritizes inexpensive valuations over growth prospects. This makes PEG less characteristic of traditional value screening.
Option C: Earnings to Price Ratio. Earnings yield (inverse of P/E) is a classic value metric because it assesses earnings power relative to price. It directly fits the value investor’s focus on cheap earnings relative to price, so it would be used.
Option D: Cash Flow to Price Ratio. This screen emphasizes cash flow generation per unit of price. Strong cash flows are a hallmark of many value strategies, making this a reasonable value-oriented screen.
Option E: Book to Market Ratio. The classic price-to-book orientation is a staple in value investing, as it highlights undervalued assets relative to their book value, a core value screen.
Across the options, the key distinction is that PEG emphasizes growth versus value signals. Since the question asks which screen would not be used by a value-orientated investor, the PEG-based metric stands out as the least consistent with value-focused screening.
In summary, the PEG ratio (Option B) contrasts with the other options, which are commonly employed by value investors to identify undervalued or asset-backed opportunities. The remaining screens (A, C, D, E) align with a value-oriented approach due to their focus on yield, earnings, cash flows, or book value relative to price.

Which of the following screens would not be used by a value-orientated investor?

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