For Immediate Release
Chicago, IL – October 15, 2018 - Stocks in this week’s article include: Manulife Financial Corporation MFC, Jazz Pharmaceuticals plc JAZZ, DaVita Inc. DVA, American Axle & Manufacturing Holdings, Inc. AXL and Huntsman Corp. HUN.
Screen of the Week of Zacks Investment Research:
5 Low Price-to-Book Stocks to Buy in a Volatile Market
In the present volatile stock market, value analysis, is becoming more and more important. In value stock analysis, most investors use the P/E ratio to search for lucrative stocks but there are other ratios that an investor can consider like price-to-sales ratio (P/S) and price-to-book (P/B) ratio. The P/S ratio is simply price divided by sales. One of the reasons Price to Sales ratio is a better choice is because it looks at sales rather than earnings like the P/E ratio. 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.
The P/B ratio is calculated as below:
P/B ratio = market price per share/book value of equity per share
What is Book Value?
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 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 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. The higher the P/B, the more expensive the stock.
But there is a caveat. A P/B ratio 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 expenditures, high-debt companies, service companies or those with negative earnings.
In any case, the ratio is not particularly relevant as a standalone number. One should also analyze other ratios like P/E, P/S, and debt to equity before arriving at a reasonable investment decision.
And that's what we're screening for today…
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/327625/5-low-pricetobook-stocks-to-buy-in-a-volatile-market
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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 options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.
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American Axle & Manufacturing Holdings, Inc. (AXL) : Free Stock Analysis Report
Huntsman Corporation (HUN) : Free Stock Analysis Report
Manulife Financial Corp (MFC) : Free Stock Analysis Report
Jazz Pharmaceuticals PLC (JAZZ) : Free Stock Analysis Report
DaVita Inc. (DVA) : Free Stock Analysis Report
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