Buy These 5 Low Book Value Stocks For Solid Returns
Value investors prefer price-to-earnings (P / E) and price-to-sell (P / S) ratios to identify low-priced stocks offering exceptional returns. However, the underestimated price-to-book ratio (P / E ratio) is also an easy-to-use valuation tool for this purpose. The ratio is used to compare the value / market price of a stock to its book value.
The P / B ratio is calculated as follows:
P / B ratio = market price per share / book value of equity per share
The P / B ratio reflects the number of times book value investors are willing to pay for a stock. So if the stock price is $ 10 and the book value of equity is $ 5, investors are willing to pay twice the book value. Ideally, a P / B value of less than 1.0 is considered good, indicating a potentially undervalued stock. However, value investors often consider stocks with a P / B value below 3.0.
Now let’s understand the concept of book value.
What is book value?
There are several ways to define the book value. Book value is the total value that would remain, according to the company’s balance sheet, in the event of immediate bankruptcy. In other words, this is what shareholders would theoretically receive if a company liquidated all of its assets after paying off all of its liabilities.
It is calculated by subtracting total liabilities from total assets of a business. In most cases, this is equivalent to common shareholders’ equity on the balance sheet. However, according to the company’s balance sheet, intangible assets must also be subtracted from total assets to determine book value.
Understanding the P / B Ratio
By comparing the book value of equity to its market price, we get an idea of ââwhether a company is undervalued or overvalued. However, like the P / E or P / S ratio, it is always best to compare P / N ratios within industries.
An AP / E ratio of less than one means the stock is trading below its book value or the stock is undervalued and therefore is a good buy. Conversely, a stock with a ratio greater than one can be interpreted as being overpriced or relatively expensive.
For example, a stock with a P / N ratio of 2 means we pay $ 2 for every $ 1 of book value. Thus, the higher the P / B, the more expensive the action.
But there is a caveat. An AP / E ratio of less than one can also mean that the company is generating low or even negative returns on its assets, or that the assets are overvalued, in which case the stock should be avoided as it can destroy shareholder value. Conversely, the share price can be considerably high – thus pushing the P / B ratio to more than one – in the probable event that it has become a takeover target, reason enough to hold the share. ‘action.
In addition, the P / B ratio is not without limits. It is useful for businesses – like finance, investment, insurance, and banking or manufacturing companies – with many liquid / tangible assets on the books. However, it can be misleading for companies with large R&D spending, high debt, service companies, or those with negative profits.
In any case, the ratio is not particularly relevant as a stand-alone number. Other ratios such as P / E, P / S and debt / equity need to be analyzed before arriving at a reasonable investment decision.
Price to Book (Common Equity) below the X-Industry median:A P / B below the industry average implies that there is enough room for the stock to win.
Sales price below the X-Industry median: The P / S ratio determines the market value for every dollar of company sales / revenue – a lower ratio than the industry makes the stock attractive.
Price / earnings using the F (1) estimate lower than the X-Industry median: The P / E (F1) ratio rates a company based on its current stock price relative to its estimated earnings per share – a lower ratio than the industry is considered better.
PEG less than 1: The PEG links the P / E ratio to the company’s future growth rate. The PEG report gives a more complete picture than the P / E report. A value less than 1 indicates that the stock is undervalued and that investors should pay less for a stock that has good prospects for earnings growth.
Current price greater than or equal to $ 5: They must all trade at a minimum of $ 5 or more.
Average volume over 20 days greater than or equal to 100,000:A substantial trading volume ensures that the stock is easily tradable.
Rank of Zacks less than or equal to # 2:Zacks Rank # 1 (Strong Buy) or 2 (Buy) stocks are known to outperform regardless of the market environment.
Value score equal to A or B: Our research shows that stocks with a value score of A or B when combined with a rank 1 or 2 of Zacks offer the best opportunities in the value investing space. .
Here are five of the 10 actions that qualified the screening:
Atlas Corp. ATCO, an asset management company, has a 3 to 5 year EPS growth rate of 15.6%. He currently has a Zacks Rank # 1 and a Value Score of A. You can see the full list of Zacks # 1 Rank stocks today here.
Based in Tokyo, Japan Honda Motor Co., Ltd. HMC is one of the world’s leading automobile manufacturers and the largest producer of motorcycles. It has a projected 3 to 5 year EPS growth rate of 21.8%. He currently has a Zacks Rank # 2 and a Value Score of A.
Owens & Minor IMO, a global healthcare solutions company, has a 3 to 5 year projected BPA growth rate of 15.1%. He currently has a Zacks Rank # 1 and a Value Score of A.
ArcelorMittal MT, the world’s largest steel and mining company, has a 3 to 5 year projected EPS growth rate of 15.2%. He currently has a Zacks Rank # 1 and a Value Score of A.
ASE Technology Holding Co., Ltd. ASX, a semiconductor manufacturing services company, has a Zacks Rank # 2 and a Value Score of A. The company has a 3 to 5 year projected BPA growth rate of 15%.
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Disclosure: Officers, directors and / or employees of Zacks Investment Research may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document. An affiliated investment advisory firm may own or have sold securities short and / or hold long and / or short positions in options mentioned in this document.
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Owens & Minor, Inc. (OMI): Free Stock Analysis Report
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