# 3 Metrics the Pros Use To Find Undervalued Stocks
Professional investors rely on three core metrics to identify stocks trading below their real value.
The price-to-earnings ratio (P/E) compares a company's stock price to its annual profits. A lower P/E suggests the stock costs less relative to earnings. The price-to-book ratio (P/B) divides stock price by the company's asset value. This metric works well for asset-heavy businesses like manufacturers. The enterprise value-to-EBITDA ratio accounts for debt and cash while comparing the company's total value to its operating earnings. This approach reveals whether debt levels make a stock riskier.
Smart investors don't rely on a single metric. They calculate all three and compare results across companies in the same industry. A stock with a low P/E but high P/B might signal expensive assets, not a bargain. Comparing peers matters because industries have different normal ranges. A bank's typical P/E differs vastly from a tech company's.
These calculations require basic financial data from company filings or financial websites. Stock screeners automate the process, letting investors filter thousands of companies at once. Mastering these three metrics gives you the same analytical foundation professional investors use to build winning portfolios.