Ford Equity Research’s Price to Value ratio (PVA) is computed by dividing the price of a company’s stock by the value derived from a proprietary intrinsic value model. A PVA greater than 1.00 indicates that a company is overpriced while a PVA less than 1.00 implies that a stock is trading below the level justified by its earnings, quality rating, dividends, projected growth rate, and prevailing interest rates.
While looking at the PVA for an individual company can give a good indication of its value, the average PVA for the market as a whole can provide insight into current valuation levels for the overall stock market.
Consistent with last month’s scores, the PVA scores for all three major S&P indices are below historical averages. The S&P 500 currently has a PVA score of .45 and is one full standard deviation below the long-term average. This is the same level it was back in 2013.
Meanwhile, the PVA scores for the S&P Mid Cap and Small cap indices are currently 0.56 and 0.54 respectively. This represents almost two full standard deviations below the long-term average. These are levels similar to those reached back in 2011 and 2012. Thus, illustrating that there is currently better value in owning Mid and Small cap stocks.