How can you tell if a stock is cheap?

In seeking the best-value stocks, you may not think to use this lesser-known, yet successful ratio. Tim Bennett explains what it is, how it works, and where it's telling you to put your money.

How do you make money in the stock market? The glib answer is to buy low and sell high': buy stocks when they're cheap and cash in when they get expensive. But how do you tell when something is cheap enough?

There are lots of ratios you can use, from price/earnings to price/book. But a recent study by analysts Thomson Reuters StarMine points to a less well-known measure: price/intrinsic value (p/IV). Buy when a market is cheap on this measure, and history suggests you could earn double-digit returns for years. So how does it work?

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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.

He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.