Published October 28, 2026 · by Troels Højbjerg, Founder
A $10 stock can be expensive and a $500 stock cheap. What matters is what you get for your money.
My value score looks at three ratios: price to earnings (P/E), price to sales (P/S) and price to book value (P/B). Each one is ranked against every stock we follow. Earnings count double, so a company that loses money never shows up as cheap. A value score of 70 means cheaper than 70% of the other stocks.
One thing to keep apart: on a WallStreetBuys stock page, "undervalued" means the price is more than 10% below the analysts' average price target. In this guide, cheap means the value score.
Some stocks are cheap because the business is in trouble. That is why I add a second score, quality. It measures how much the company earns on what it owns (return on assets), how much of its sales it keeps (profit and operating margin), and the Piotroski score, a nine-point health check of the accounts.
This is what happened to US stocks in the three months after the start of each month:
| At the start of the month | Cases | Price change after 3 months, median | Fell more than 10% | Down more than 20% at some point |
|---|---|---|---|---|
| Cheap and sound (value ≥ 70, quality ≥ 50) | 305 | +2.4% | 8.5% | 2.6% |
| Cheap, quality 30 to 49 | 89 | +1.1% | 23.6% | 19.1% |
| Cheap, quality below 30 | 23 | −0.8% | 30.4% | 21.7% |
| Expensive (value below 30) | 786 | −4.2% | 41.0% | 41.2% |
| All US stocks measured | 2,351 | +0.3% | 26.9% | 22.9% |
Source: my own calculation on 197 US stocks covered by WallStreetBuys, starting points July 2025 to August 2026, 63 trading days after each. Only stocks still listed today.
Cheap, sound stocks had a drop of more than 20% in 2.6% of cases. For all the stocks it was 22.9%. Cheap stocks with weak quality fell far more often, though with only 23 cases that is a hint rather than a result.
In the median, cheap and sound stocks were up 2.4% after three months, against 0.3% for all stocks. That lead was measured over 14 months in which expensive stocks did worst (median −4.2%). One period is not enough to expect it every year. The fewer deep drops are the clearer part of the result.
A weak balance sheet pointed the other way. Stocks with an Altman Z2 score of 1.1 or lower (banks and real estate left out) fell more than 10% within three months in 39.7% of cases, against 26.3% for a solid balance sheet (above 2.6).
First, compare valuation ratios with other stocks, not with yesterday's price. Second, check whether each cheap company actually makes money and whether its balance sheet holds up. Third, spread your money over several stocks, because a single cheap stock can still fall.
When a stock you own turns weak, see When should I sell a stock?
You find undervalued stocks by comparing price with earnings, sales and book value across many stocks, and then removing the weak businesses. With my rule (value at least 70, quality at least 50), US stocks fell more than 10% within three months in 8.5% of cases, against 26.9% for all the stocks I measured, and a drop of more than 20% was rare (2.6% against 22.9%). Their median return was 2.4% against 0.3%, but that is 14 months in a period that was hard on expensive stocks. Cheap stocks with weak quality did worse, on too few cases to say much. Debt is not in either score, so check the balance sheet as well.
One thing to check: what quality score does the cheapest stock you own have? If it is below 50, take a look at the company's numbers.
The value and quality score for every US stock we cover is free, with no sign-up, on its stock page. Stocks with a buy signal, ranked by the three scores, are under Buy signals.
Look for stocks that are cheap relative to earnings, sales and book value, then remove the weak businesses. I use two scores from 0 to 100: value at least 70 and quality at least 50. US stocks that met both fell more than 10% within three months in 8.5% of cases, against 26.9% for all the US stocks I measured. Their median return was also a little higher, but over only 14 months.
I cannot pick stocks for you. What I can tell you is how to read the numbers: on every WallStreetBuys stock page you see the value and quality score. A stock with value at least 70 and quality at least 50 is cheaper than most stocks we follow and is run more soundly than average. Whether that makes it a buy for you depends on your own situation.
Look at how much the company earns on what it owns (return on assets), how much of each dollar of sales it keeps (profit and operating margin), and a nine-point health check of the accounts (the Piotroski score). Those four make up the quality score on WallStreetBuys. Debt is not part of it, so check the balance sheet too.
Neither wins every year. In my 14 months of US data, expensive stocks (value score below 30) fell more than 10% within three months in 41% of cases, and cheap, sound stocks in 8.5%. That says something about risk in that period, not about which style wins over decades.
Read also: When to sell a stock · Is insider buying a good signal? · Methodology · Buy signals
This is information, not individual investment advice. The numbers are our own calculations on market data and may contain errors. Past results are no guarantee of the future. You decide for yourself — and remember to spread your risk.