i have seen many stocks whose current pps is far less than their Book value. ex ING book value is 15.25 and current pps is 8.79 50% less
my understanding is any stock below book value is undervalued.
Investopedia explains Book Value Per Common Share Should the company decide to dissolve, the book value per common indicates the dollar value remaining for common shareholders after all assets are liquidated and all debtors are paid.
In simple terms it would be the amount of money that a holder of a common share would get if a company were to liquidate
what are other reasons for stock to be so undervalued ? can any one explain plz
Banks by definition have 10-15 leverage ratio, called gearing. It is mesured as RWA (RiskWeightedAssets) ratio to Equity(BookValue);
If a 10 times leveraged bank lost just 10% of RWA by way of recession, crash, etc.(which is a lot), they lose all their Equity. And by law they must bankrupt.
The bank is risky business; and their pricing reflects this fact, particularly when investor's sentiment becomes extremly risk-averse, just like now.
To demonstrate how extrem risk-aversion Is:
1)Currently the bank's pricing equation is (using multiple linear regression) cca. Price=0.9*Bookvalue+5*Dividend% And othertimes important factors like Earnings, Growth, etc. are absolutely insignificant.
2)Longterm, the pricing equation is cca. Price=2*Bookvalue+6*Earnings+1.5*Div%