Ratios, numbers, forecasts, and data points are abundant in the financial world. You can't peruse a financial site or catch a business publication without titles like "5 Stocks to own today." There are obvious problems with that headline: why just five? How do you know what my financial needs are to recommend five nifty stocks?
Some articles are gimmicky, others have merit. On whether to use rough rules such as low P/E, Price-to-Book, or Price-to-Sales screeners, the answers is painfully simple: If you're investing your own money in individual stocks and are comfortable with the gyrations of Mr. Market, and, if you understand (and care) what deferred revenue is, you should consider the question. This understandable excludes most people.
For those who dare to brave the waters of the financial markets, and individual stock selection, two ideas make sense: 1) formulaic & broad screeners that slowing lead to investments in 30+ stocks without care for company specifics (in this case, diversification protects you from stupid picks), 2) in-depth and concentrated (5-8 positions) selection based on a) favorable long-term economics, b) the desire to run the business, if it were possible, for a period of about 5 years, c) a reasonable price tag).
I'd prefer the second option of looking at stocks, though it doesn't create great newspaper headlines.
Disclosure: none
Other: Joel Greenblatt's book "Magic Formula Investing" is a great option if you'd prefer the formulaic approach.
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