For investors who fear that the markets have soared too far too fast, the thought that some stocks may still be cheap is hard to imagine -- especially when it comes to China.

Here’s one way to separate the cash from the trash.

I call it the “good-deal number” or the “good-deal indicator.” And for a very good reason: By running this simple equation, I can determine whether a stock I’m interested in is worth buying.

Intuitively, investors know that it’s best to buy at the bottom and sell at the top. And history bears this out.

For instance, investors who bought at or near such market peaks as 1928, 1969, 1999, or 2007 tended to overpay. And they doomed themselves to sub-par returns as a result.

On the other hand, investors who had the courage to wade in when the days were darkest -- think 1932, 1942, 1982, and 2003 -- were typically rewarded with above-average results. Over time, such moves can translate into life-changing wealth.

Unfortunately, reality is never that simple. Markets usually aren’t operating at peak or trough levels. And even when they are, how can an investor tell for sure?

Nor is that the only challenge investors have to face, Pat Dorsey, director of equity research for Morningstar, wrote in a recent Money magazine column. Although investors endure a daily barrage of stock prices, Dorsey said there’s no “ticker tape” that tells us whether those prices represent actual values.

In other words, just because a stock is cheap doesn’t mean it’s a bargain.

That’s why I like my “good-deal indicator” so much. Although it can be used when the markets have reached extremes, it’s just as useful when the markets are in between extremes -- as they are right now.

But best of all, it’s simple to calculate and easy to use. I can run the number in my head or on the back of a napkin -- without resorting to fancy spreadsheets or computer modeling. You can develop a good feel for how a company will perform over a longer stretch so you won’t get fooled by one or two periods of dramatic movement.

Let’s walk through a real-world example drawn from a meeting I held in China regarding a fast-growing energy-and-biofuels company that I’m studying right now.

To start, you need two key numbers: the company’s earnings per share (EPS) and its price/earnings (P/E) ratio.

Since 2007, this company’s annual per-share earnings have ranged between $0.22 and $0.72, according to MSNMoney.com. For purposes of making a reasonable, middle-ground estimate, let’s say the company’s EPS number is $0.47.

During the period in question, the company’s P/E ratio has ranged from a low of 5.0 to a high of 43. So using the same middle-ground approach, let’s call it a P/E of 24.

Now we multiply the EPS of $0.47 by the P/E of 24 (0.47 x 24) and we get a rough “value per share” of $11.28. That’s roughly 1.69 times higher than the stock’s recent market price of $6.65, suggesting that this particular stock is a “good deal.”

Here’s the calculation:

EPS of 47 x P/E of 24 = Estimated Value of $11.28/Market Price of $6.65 = “Good-Deal Number” of 1.69. Conclusion: Stock appears to be undervalued -- and a “good deal” -- at this price.