A recent article in The Globe and Mail shares the findings of back-testing eight different value ratios using the S&P 500 index.

Specifically, the study involved creating 20-stock portfolios using names with low ratios of:

• price-earnings
• price-book value
• price-tangible book value
• price-sales
• price-cash flow
• price-free cash flow
• enterprise value-EBITDA

The article reports, “The value portfolios won in each and every case over the full 25-year period,” offering specific returns related to the various portfolios. “The cheery 25-year results,” the article states, “might whet your appetite for value stocks. But before you dive in, it’s instructive to consider the most recent 10-year period spanning from the end of 2007 to the end of 2017,” which it says reflects much weaker results. The article points out that the success of any particular value ratio varies over time, “a big reason why many quantitatively oriented investors use multiple factors when looking for promising stocks.”

Although the past ten years were tough for value investors, the article concludes, “such periods happen from time to time. Hopefully, the next 25 years will be similar to the past 25 years rather than the past 10.”