Valuation, it is often said, is more of an art than an exact science. I tend to agree with the above statement, as valuation, in itself, only captures a snapshot of the company at a specific point in time. It may also tell you a lot about the company’s past, but does not give you any indication of what its future potential may be. Hence, when looking at different valuation metrics, you have to understand their overall context and also be aware of their limitations. That said, valuations can be useful to get a sense of whether shares are cheap or expensive. As we approach the stock market to look for great companies to buy, valuation provides us with a reference point and guides both our investment decisions and sizing. Simply put, if a company is trading at lofty valuations, we may consider avoiding it or sizing it smaller within our portfolio to minimize risks...