The value screener trap

Summary: Not every falling stock is a bargain, even if it looks cheap on paper. True value lies in business quality and earnings strength, not just lower valuations.

Summary: Not every falling stock is a bargain, even if it looks cheap on paper. True value lies in business quality and earnings strength, not just lower valuations. When markets stall, investors reach for screeners. One of the most popular ones is this: stocks trading below their five-year median price-to-earnings or P/E. It sounds sensible. It promises to narrow down value and delivers hundreds of seemingly cheap names. But most won’t actually be cheap. Not because the filter is wrong, but because the yardstick is. A five-year median, shaped by an inflated cycle, is misleading. The ruler is too short Here is the problem with using a five-year P/E median as a measure of fair value: the five years in question are 2021 to 2025, a period that included a post-pandemic liquidity surge and a mid- and small-cap rally that senior fund managers publicly described, at the time, as absurd. Using that era’s average as a basis of value is not conservative. It builds distortion into the analysis. The numbers make this concrete. In a universe of 1,114 companies all with a 10-year history and a market cap above Rs 500 crore, two-thirds had a five-year median valuation higher than their 10-year median by an average of 20 per cent. In other words, the five-year benchmark is inflated. About 691 comp

This article was originally published on April 01, 2026.