雅虎香港財經 5 Low Price-to-Book Stocks to Add to Your Kitty in May
It’s not an easy job to find value stocks. Being aware of a company's key financial numbers, like earnings per share and sales growth, can help investors identify stocks that are trading for less than what they are worth. However, a proper analysis of the fundamentals with the help of a number of metrics is required to determine whether a stock is a good bargain or not.
For narrowing down the list of undervalued stocks, price to earnings (P/E) and price to sales (P/S) are the first ratios that come to an investor’s mind. However, the price-to-book ratio (P/B ratio), though underrated, is also an easy-to-use valuation tool for identifying low-priced stocks with high-growth prospects.
The P/B ratio is calculated as below:
P/B ratio = market capitalization/book value of equity
The P/B ratio helps to identify low-priced stocks with high growth prospects. General Motors Company GM, JD.com JD, StoneCo STNE, Affiliated Managers Group AMG and PagSeguro Digital PAGS 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 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 warning. 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 is not 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 nine picks that qualified the screening:
Headquartered in Detroit, General Motors is one of the world’s largest automakers. General Motors, along with its strategic partners, produces, sells and services cars, trucks and parts under four core brands — Chevrolet, Buick, GMC and Cadillac. General Motors assembles passenger cars, crossover vehicles, light trucks, sport utility vehicles, vans and other vehicles.
General Motors currently 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.
General Motors has a projected 3-5-year EPS growth rate of 9.02%.
Beijing, China-based JD.com operates as an online direct sales company in China. It offers computers, mobile handsets and other digital products, home appliances, automobile accessories, clothing and shoes, luxury goods, including handbags, watches and jewelry, furniture and household products, cosmetics and other personal care items, food and nutritional supplements, books, e-books, music, movies and other media products, mother and childcare products, toys, sports and fitness equipment and virtual goods.
JD.com has a projected 3-5-year EPS growth rate of 43.75%. JD currently has a Zacks Rank #1 and a Value Score of A.
StoneCo provides financial technology solutions. The company offers an end-to-end cloud-based technology platform to conduct electronic commerce across in-store, online and mobile channels. StoneCo is based in Sao Paulo, Brazil.
STNE has a Zacks Rank #2 and a Value Score of A. STNE has a projected 3–5-year EPS growth rate of 21.46%.
Headquartered in Massachusetts, Affiliated Managers Group is a global asset manager with equity investments in a large group of investment management firms or affiliates. On the whole, the affiliates manage more than 500 investment products across each major product category — global, international and emerging markets equities, domestic equities, and alternative and fixed-income products.
Affiliated Managers Group has a Zacks Rank #2 and a Value Score of A at present. AMG has a projected 3-5-year EPS growth rate of 13.0%.
PagSeguro Digital provides financial technology solutions and services for micro-merchants and small and medium-sized businesses primarily in Brazil and internationally. The company offers multiple digital payment solutions, in-person payments via point-of-sales devices and prepaid card services. PagSeguro Digital is headquartered in Sao Paulo, Brazil.
PagSeguro Digital has a projected 3-5-year EPS growth rate of 14.48%. PAGS currently has a Zacks Rank #2 and a Value Score of A.
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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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General Motors Company (GM) : Free Stock Analysis Report
Affiliated Managers Group, Inc. (AMG) : Free Stock Analysis Report
JD.com, Inc. (JD) : Free Stock Analysis Report
PagSeguro Digital Ltd. (PAGS) : Free Stock Analysis Report
StoneCo Ltd. (STNE) : Free Stock Analysis Report
