5 Low Price-to-Book Stocks to Buy in November
Value investors have preferred the price-to-earnings ratio or P/E since time immemorial as a means to identify value stocks. However, in the case of loss-making companies that have a negative price-to-earnings ratio, the price-to-sales or P/S ratio is considered while determining their true value.
However, the price-to-book ratio (P/B ratio), though used less often, is also an easy-to-use valuation tool for identifying low-priced stocks with great returns.
P/B is the ratio of stock price to book value.
It is calculated as below:
P/B ratio = market capitalization/book value of equity.
The P/B ratio helps to identify low-priced stocks that have high growth prospects. Select Medical Holdings Corporation SEM, PVH Corp. PVH, Centene CNC, Paysafe Limited PSFE and HF Sinclair Corporation DINO are some such stocks.
Now, let us understand the concept of book value.
What is Book Value?
There are several ways by which book value can be defined. Book value is the total value that would be left over, according to the company’s balance sheet, if it goes bankrupt immediately. In other words, this is what shareholders would theoretically receive if a company liquidates all its assets after paying off all its liabilities.
It is calculated by subtracting total liabilities from the total assets of a company. In most cases, this equates to the common stockholders’ equity on the balance sheet. However, depending on the company’s balance sheet, intangible assets should also be subtracted from the total assets to determine book value.
Understanding P/B Ratio
By comparing the book value of equity to its market price, we get an idea of whether a company is under or overpriced. However, like P/E or P/S ratio, it is always better to compare P/B ratios within industries.
A P/B ratio of less than one means that the stock is trading at less than 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 that 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. A P/B ratio of less than one can also mean that the company is earning weak or even negative returns on its assets or that the assets are overstated, in which case the stock should be shunned because it may be destroying shareholder value. Conversely, the stock’s price may be significantly high — thereby pushing the P/B ratio to more than one — in the likely case that it has become a takeover target, a good enough reason to own the stock.
Moreover, the P/B ratio isn't without limitations. It is useful for businesses — like finance, investments, insurance, and banking or manufacturing companies — with many liquid/tangible assets on the books. However, it can be misleading for firms with significant R&D expenditure, high debt, service companies, or those with negative earnings.
In any case, the ratio is not particularly relevant as a standalone number. One should analyze other ratios like P/E, P/S and debt to equity before arriving at a reasonable investment decision.
Screening Parameters
Price to Book (common Equity) less than X-Industry Median: A lower P/B compared with the industry average implies that there is enough room for the stock to gain.
Price to Sales less than X-Industry Median: The P/S ratio determines how much the market values every dollar of the company’s sales/revenues — a lower ratio than the industry makes the stock attractive.
Price to Earnings using F(1) estimate less than X-Industry Median: The P/E ratio (F1) 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: PEG links the P/E ratio to the future growth rate of the company. The PEG ratio portrays a more complete picture than the P/E ratio. A value of less than 1 indicates that the stock is undervalued and investors need to pay less for a stock that has bright earnings growth prospects.
Current Price greater than or equal to $5: They must all be trading at a minimum of $5 or higher.
Average 20-Day Volume greater than or equal to 100,000: A substantial trading volume ensures that the stock is easily tradable.
Zacks Rank less than or equal to #2: Zacks Rank #1 (Strong Buy) or 2 (Buy) stocks are known to outperform irrespective 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 Rank #1 or 2, offer the best opportunities in the value investing space.
Here are five of the 11 picks that qualified the screening:
Mechanicsburg, PA-based Select Medical is a healthcare company, which owns long-term acute care and inpatient rehabilitation hospitals, as well as occupational health and physical therapy clinics. Select Medical has a Zacks Rank #2 and a Value Score of A. You can see the complete list of today’s Zacks #1 Rank stocks here.
SEM has a projected 3-5-year EPS growth rate of 23.41%.
PVH Corp. specializes in designing and marketing branded dress shirts, neckwear, sportswear, jeanswear, intimate apparel, swim products, footwear, handbags and related products.
PVH has a Zacks Rank #2 and a Value Score of A. PVH has a projected 3–5 year EPS growth rate of 13.30%.
Centene is a well-diversified healthcare company that primarily provides a set of services to government-sponsored healthcare programs. It is also engaged in providing education and outreach programs to inform and assist members in accessing quality, appropriate healthcare services.
Centene has a projected 3–5-year EPS growth rate of 12.83%. CNC currently has a Zacks Rank #2 and a Value Score of A.
Headquartered in Las Vegas, Paysafe Limited, which was formerly known as Foley Trasimene Acquisition, is a specialized payments platform. The company enables businesses and consumers to connect and transact seamlessly through payment processing solutions, digital wallets, including the Skrill and Neteller brands, and online cash solutions, including paysafecard and Paysafecash.
PSFE has a Zacks Rank #1 and a Value Score of B. Paysafe Limited has a projected 3–5-year EPS growth rate of 10.45%.
Based in Dallas, HF Sinclair is an energy company that produces and markets light products such as gasoline, diesel fuel, jet fuel, renewable diesel and other specialty products. It owns and operates refineries located principally in Kansas, Oklahoma, New Mexico, Wyoming, Washington and Utah.
HF Sinclair has a projected 3-5-year EPS growth rate of 8.95%. DINO currently has a Zacks Rank #2 and a Value Score of A.
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PVH Corp. (PVH) : Free Stock Analysis Report
Centene Corporation (CNC) : Free Stock Analysis Report
Select Medical Holdings Corporation (SEM) : Free Stock Analysis Report
Paysafe Limited (PSFE) : Free Stock Analysis Report
HF Sinclair Corporation (DINO) : Free Stock Analysis Report
