Book value

5 Low Price-to-Book Stocks to Buy for Strong Returns

The price-to-book (P/B) ratio is widely favored by value-oriented investors to identify low-priced stocks offering exceptional returns. The ratio is used to compare the market value/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 investors’ book value is willing to pay for a stock. So, if the stock price is $10 and the equity book value is $5, investors are willing to pay double the book value. Ideally, a P/B value below 1.0 is considered good because it indicates that the stock is potentially undervalued. However, value investors often consider stocks with a P/B value below 3.0.

The P/B ratio helps identify low-priced stocks that have high growth prospects. BorgWarner BWA, Group 1 Automotive GPI, Turtle Beach Company TO LISTEN, Commercial Vehicle Group CVGI and Signet Jewelers Limited GIS are some of these stocks.

Now let’s understand the concept of book value.

What is the book value?

Book value is the total value that would remain, according to the company’s balance sheet, if it went bankrupt immediately. In other words, it’s what shareholders would theoretically receive if a company liquidated all of its assets after settling all of its liabilities.

It is calculated by subtracting the total liabilities from the total assets of a business. In most cases, this equates 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 if a company is undervalued or overvalued. However, like the P/E or P/S ratio, it is always best to compare P/B ratios within industries.

An AP/B ratio of less than one means the stock is trading at a price below its 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 being overvalued or relatively expensive.

For example, a stock with a P/B ratio of 2 means we pay $2 for every $1 of book value. Thus, 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 getting 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 price of the stock may be significantly high – thereby pushing the P/B ratio to more than one – in the likely event that it has become a buyout target, reason enough to hold the stock. .

Moreover, the P/B ratio is not without limits. It is useful for businesses – such as finance, investments, insurance, and banking or manufacturing companies – with many liquid/tangible assets on the books. However, this can be misleading for companies with large R&D expenses, high debt, service companies, or those with negative earnings.

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 should be analyzed before making a reasonable investment decision.

Screening Parameters

Price to Book (common Equity) below the X-Industry median: A lower P/B relative to the industry average implies that there is enough room for the stock to win.

Selling price below median X-Industry: The P/S ratio determines how much the market values ​​each dollar of the company’s sales/revenue – a lower ratio than the industry makes the stock attractive.

Price/earnings ratio using F(1) estimate below industry median X: The P/E (F1) ratio values ​​a company based on its current share price relative to its estimated earnings per share – a lower ratio than the industry is considered better.

PEG less than 1: The PEG relates the P/E ratio to the future growth rate of the company. The PEG ratio gives a more complete picture than the P/E ratio. A value below 1 indicates the stock is undervalued and investors should pay less for a stock that offers good earnings growth prospects.

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: Substantial trading volume ensures that the stock is easily tradable.

Zacks rating 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 of A or B: Our research shows that stocks with a Value Score of A or B, when combined with a Zacks #1 or 2 ranking, offer the best opportunities in the investment space valuable.

Here are our five picks from the 12 stocks that qualified the selection:

Turtle Beach Company is an audio technology company. It designs audio products for the consumer, commercial and healthcare markets. The company markets premium headsets for use with personal computers, mobile devices and video game consoles under the Turtle Beach brand.

Turtle Beach Corporation has a Zacks Rank #2 and a Value Score of A. Turtle Beach Corporation has an expected 3-5 year EPS growth rate of 16.0%.

BorgWarner is a world leader in clean and efficient technology solutions. BorgWarner’s biggest customers are Volkswagen and Ford. BWA’s production and technical facilities are spread over 64 sites in 17 countries.

BorgWarner forecasts an EPS growth rate of 29.37% over 3 to 5 years. BWA currently has a Zacks rank #1 and a value score of A.

Group 1 Automotive is a leader in automobile distribution. Through its dealerships, the company sells new and used cars and light trucks. In addition to the sale of new and used vehicles, Group 1 Automotive offers vehicle financing, insurance and service contracts.

1 Automotive Group has an expected 3-5 year EPS growth rate of 14.19%. GPI currently has a Zacks rank #2 and a value score of A.

Commercial Vehicle Group provides interior systems, visual safety solutions and other cabin-related products for the global commercial vehicle market, including the heavy-duty (Class 8) truck market, construction market and other automotive markets. specialized transport. The Company’s products include suspension seat systems, interior trim systems, such as instrument and door panels, headliners, cabinet and floor systems, mirrors, interior wipers, controls and switches, specifically designed for utility vehicle cab applications.

CVGI currently has a Zacks Rank #1 and a Value Score of B. You can see the full list of today’s Zacks #1 Rank stocks here.

It has an expected 3-5 year EPS growth rate of 21.0%.

Bookmark Jewelers is a retailer of diamond jewelry, watches and other products. SIG operates in the United States, Canada, United Kingdom, Republic of Ireland and the Channel Islands.

Signet Jewelers forecasts an EPS growth rate of 8% over 3-5 years. Signet Jewelers currently has a Zacks rank #1 and a value score of A.

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Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in the options mentioned herein. An affiliated investment advisory firm may hold or have shorted securities and/or hold long and/or short positions in options mentioned herein.

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Zacks names ‘only one best choice for doubling up’

From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.

It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.

This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.

Free: See our best stock and our 4 finalists >>

Click to get this free report

BorgWarner Inc. (BWA): Free Inventory Analysis Report

Signet Jewelers Limited (SIG): Free Stock Analysis Report

Group 1 Automotive, Inc. (GPI): Free Inventory Analysis Report

Commercial Vehicle Group, Inc. (CVGI): Free Inventory Analysis Report

Turtle Beach Corporation (HEAR): Free Stock Analysis Report

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