With the recent rise in stocks, value analysis has become increasingly important in identifying high-value stocks. Price / Earnings (P / E) and Price / Sell (P / S) are the first ratios that strike an investor’s mind when looking for undervalued stocks. However, the underestimated price-to-book ratio (P / E ratio) is also an easy-to-use valuation tool for identifying low-priced stocks with outstanding returns.
The P / B ratio is calculated as below:
P / B 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 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 the book value.
Understanding the P / B Ratio
By comparing the book value of equity to its market price, we get an idea of whether 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 overvalued 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 below 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. You have to analyze other ratios like P / E, P / S and debt / equity before arriving at a reasonable investment decision.
Price to Book (Common Equity) below the X-Industry median: A lower P / B than 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 the company’s sales / revenue – a lower ratio than the industry makes the stock attractive.
Price / profit using an F (1) estimate lower than the X-Industry median: The P / E (F1) ratio values 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 relates 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 Zacks # 1 or 2 rank offer the best opportunities in the value investing space. .
Here are six of the seven actions that qualified the screening:
Canadian solar CSIQ, a leading solar company, forecasts a 3 to 5 year EPS growth rate of 32%. He currently has a Zacks Rank # 2 and a Value Score of A. You can see the full list of Zacks # 1 Rank stocks today here.
Corporation of America Holdings Laboratory LH, a leading healthcare diagnostics company, has a projected 3-5 year BPA growth rate of 10.2%. He currently has a Zacks # 1 ranking and a value score of B.
Boise Cascade Company BCC, a manufacturer of wood products and distributor of building materials, is currently a # 2 rated Zacks stock. It has a 3-5 year BPA growth rate of 13.4% and a value score of A.
Teva Pharmaceutical Industries Limited TEVA, the leading manufacturer of generic drugs, currently has a Zacks Rank # 2 and a Value Score of A. It has a 3-5 year BPA growth rate of 5.3%.
Atlas Corporation ATCO, an asset management company, is currently a # 2 ranked stock by Zacks. It has a 3-5 year BPA growth rate of 18.1% and a value score of A.
Pampa Energia SA PAM, a large power company in Argentina, has a projected 3 to 5 year EPS growth rate of 6.5%. He currently has a Zacks Rank # 1 and a Value Score of A.
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Teva Pharmaceutical Industries Ltd. (TEVA): Free Stock Analysis Report
Canadian Solar Inc. (CSIQ): Free Stock Analysis Report
Pampa Energia SA (PAM): Free stock analysis report
Laboratory Corporation of America Holdings (LH): Free Stock Analysis Report
Boise Cascade, LLC (BCC): Free Stock Analysis Report
Seaspan Corporation (ATCO): Free Stock Analysis Report
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