If PE, Price to Sales, Price to book, etc are not good heuristic for valuation, then is there a better method to find under valued stocks?
I believe that the price behavior of under valued stocks could give away telltale sign. Like how does the stock behave to bad news or bear market. An undervalued stock may not fall on bad news, and could keep rallying even during bear markets.
On the other hand if the stock is not going up on good news, then it may no longer be undervalued. That is where I find myself with Pidilite and 3M.They have given good results, especially Pidilite, but it seems to be already priced in.
On the other hand is Fine Organic. Its weekly chart shows an unbroken rally since inception as if no bear market ever came.
The additives are critical to performance of the product, but are a small part of overall cost. This makes manufacturers stick to trusted producer for additive even if it is slightly costly compared to competition. Having a competitive advantage, Fine Organic will demand a high PE multiple. Furthermore results have been great (profit increased 4 times YOY), and the stock went up over 15% on the news. I believe it is an undervalued stock, and regret not taking action before the results.
Portfolio update: Halved the position in Pidilite and 3M, allocated to Fine Organic.