Successful investors are always balancing risk and reward depending on their own personal risk tolerance. One common metric used to gauge risk is price-to-book ratio, or P/B.
A company’s book value is a measure of its total assets minus its intangible assets and liabilities. Another way to think about book value is the amount of cash a company would be left with if it went bankrupt and liquidated all of its assets.
In that sense, assuming a stock’s assets are valued correctly, book value is somewhat of a worst-case scenario for a stock. Unfortunately, as was the case with bank stocks during the financial crisis in 2008, sometimes companies overvalue their assets, making book value an imprecise measure.
P/B is a stock’s share price divided by its book value per share. If a stock is trading perfectly in-line with its book value, its P/B will be 1. If a stock is trading at a P/B of below 1, either the stock is offering a compelling value or it is a potential red flag that something is not right with the company’s balance sheet or the return it is getting on its assets.
Stocks Trading At Half Book Value
There are plenty of stocks currently trading at significant discounts to book value. Here are 10 stocks with P/B ratios under 0.5, according to Finviz:
- Deutsche Bank AG (NYSE: DB), 0.21 P/B
- Korea Electric Power Corporation (NYSE: KEP), 0.24 P/B
- Altaba Inc (NASDAQ: AABA), 0.26 P/B
- ArcelorMittal SA (NYSE: MT), 0.32 P/B
- Baker Hughes A GE Co (NYSE: BHGE), 0.32 P/B
- Barclays PLC (NYSE: BCS), 0.36 P/B
- POSCO (NYSE: PKX), 0.40 P/B
- KB Financial Group, Inc. (NYSE: KB), 0.44 P/B
- Mizuho Financial Group Inc. (NYSE: MFG), 0.46 P/B
- Sumitomo Mitsui Financial Grp, Inc. (NYSE: SMFG), 0.47 P/B
Investors should never rely on a single metric in determining which stocks to buy or sell. Screening for stocks with low P/Bs is a good place to start when looking for undervalued stocks, but investors should incorporate as many different methods of accurately valuing a stock’s business as possible to get a comprehensive view of a stock’s potential value.
Do you agree with this take? Email email@example.com with your thoughts.
8 REITs With 10% Yields
Photo by Ajay Suresh via Wikimedia.
See more from Benzinga
- What To Expect From Q3 Internet Earnings
- Option Traders Make Bullish Bets On Nvidia
- Apple Analyst Raises Price Target, Cites Strong iPhone 11 Sales
© 2019 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.