For immediate publication
Chicago, IL – June 11, 2021 – This week’s article includes Lumber Liquidators Holdings, Inc. LL, Boise Cascade Company BCC, Group 1 Automotive, Inc. GPI, Huntsman Corporation HUN, and Vishay Intertechnology, Inc. VSH.
Buy these low-price-to-book stocks in June
Value investing offers the opportunity to get into the market and grab stocks that would otherwise be overlooked by the majority of investors and therefore trade at cheap multiples.
Although price-to-earnings (P / E) and price-to-sales (P / S) instruments are more commonly used for stock selection, price-to-book (P / E) ratio is also an easy-to-use metric to identify bargain stocks with high growth prospects. The P / E ratio compares the market and book value of the company.
The P / B ratio is calculated as follows:
P / E ratio = market capitalization / book value of equity
What is book value?
There are several ways to define the book value. Book value is the total value that the company’s balance sheet would have left in the event of immediate bankruptcy. In other words, this would be what shareholders would theoretically get if a company liquidated all of its assets after paying off all of its liabilities.
It is calculated by subtracting total liabilities from a company’s total assets. In most cases, this corresponds to the equity of the ordinary shareholders on the balance sheet. However, depending on the company’s balance sheet, intangible assets should also be deducted from total assets to determine book value.
Understand the P / B ratio
By comparing the book value of equity to its market price, we can get an idea of whether a company is undervalued or overvalued. However, as with P / E or P / N ratios, it’s always better to compare P / N ratios within industries.
An AP / B ratio of less than one means the stock is trading below book value or the stock is undervalued and therefore a good buy. Conversely, a stock with a ratio greater than one can be interpreted as overvalued or relatively expensive.
For example, a stock with a P / B Ratio of 2 means we’ll pay $ 2 for every $ 1 of book value. The higher the P / B, the more expensive the stock.
But there is a caveat. An AP / B ratio of less than one can also mean that the company is making poor or even negative returns on its assets, or that the assets are overvalued. In this case, the stock should be avoided as it could destroy shareholder value. Conversely, the price of the stock can be significantly high – thereby pushing the P / E to more than one – in the likely event that it has become a takeover target, good reason to own the stock.
In addition, the P / B ratio is not without restrictions. It is useful for companies – such as finance, investment, insurance, and banking or manufacturing companies – with many liquid / tangible assets on their books. However, this can be misleading for companies with significant R&D spending, high debt, service companies, or companies with negative revenues.
In any case, the ratio as a single number is not particularly relevant. One should analyze other metrics such as P / E, P / E ratio and debt to equity before making a sensible investment decision.
For the remainder of this Screen of the Week article, please visit Zacks.com at: https://www.zacks.com/stock/news/1685655/buy-these-6-low-price-to-book-value-stocks-in-june
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Click here to get this free report
Group 1 Automotive, Inc. (GPI): Free Stock Research Report
Huntsman Corporation (HUN): Free Stock Research Report
Vishay Intertechnology, Inc. (VSH): Free Stock Research Report
Lumber Liquidators Holdings, Inc (LL): Free Stock Research Report
Boise Cascade, LLC (BCC): Free Stock Research Report
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