Value Composite Two (VC2) is a way of ranking companies by valuation developed by James O’Shaughnessy and explained in the latest edition of his excellent book What Works on Wall Street: The Classic Guide to the Best-Performing Investment Strategies of All Time
The Value Composite 2 factor is calculated using the following six valuation ratios:
- Price to book value
- Price to sales
- Earnings before interest, taxes, depreciation and amortization (EBITDA) to Enterprise value (EV)
- Price to cash flow
- Price to Earnings
- Shareholder Yield
Value Composite Two is calculated the same as Value Composite One (VC1) but it adds an additional ratio, Shareholder Yield.
How to use the ratio
Available as a screening ratio: Yes
Available as an output column ratio: Yes
How to select the best ranked Value Composite Two companies
To find companies with the best Value Composite Two ranking set the slider from 0% to 10%.
In the screener the VC2 has a value of between 0 (undervalued company) and 100 (expensive or overvalued company).
More information and Value Composite Two back test
You can find more information (including back test information) here: How and why to implement a Value Composite Two investment strategy world-wide