re: GNC as a value stock investment

P/E can be a good screen for value stocks, but isn't as complete as an EV-based metric such as EV/EBITDA. That's because a highly levered company could be cheap on a price basis but expensive on an enterprise value basis. Of course, if the company has only recently levered up and the benefits of said leverage are expected to be substantial, a stock priced cheaply on a P/E basis could see substantial returns on equity. The flip side, of course, is that the heavy debt could magnify losses as well.

If you're going to use P/E, at least cross-check against an EV-based metric and keep credit quality in mind before making any investment.

Consider:

Company A has $10 in equity and $90 in debt with $2 in net income and $4 in EBITDA

This company trades at a P/E of only 5 (20% earnings yield), but an EV/EBITDA of 25 (4% EBITDA yield). Is it cheap or expensive?

The answer is that it appears cheap on a P/E basis, but this could be due to the fact the company has significant debt such that the market has concerns about its viability. Were you acquiring the entire firm (equity and assumption of debt), you may assume it was expensive on the basis of EV/EBITDA.