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Zacks.com featured highlights include Celestica, ASE Technology, KB Home, Group 1 Automotive and Hillenbrand

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For Immediate Release

Chicago, IL – March 11, 2022 – Stocks in this week’s article are Celestica (CLS - Free Report) , ASE Technology Holding (ASX - Free Report) , KB Home (KBH - Free Report) , Group 1 Automotive (GPI - Free Report) and Hillenbrand (HI - Free Report) .

Add These 5 Low P/B Stocks to Your Portfolio in March

The task of spotting a discounted stock is quite difficult. Value investors have tried various ways to identify stocks trading at a discount to their actual value.

When you are a growth investor, you buy a share with tremendous growth potential. However, value investing is different and involves picking stocks priced below their intrinsic value. Ironically, it requires investors to embrace stocks that are under the radar. Price-to-earnings (P/E) and price-to-book value (P/B) ratios are the favorite tools of value investors.

Though P/E is a more popular financial metric, the P/B ratio is also emerging as a convenient tool for identifying low-priced stocks that have high growth prospects. The ratio is used to compare a stock’s market value/price to its book value.

The P/B ratio is calculated as below:

P/B ratio = market price per share/book value of equity per share

Now let us understand the concept of book value.

The P/B ratio helps to identify low-priced stocks that have high-growth prospects. Celestica, ASE Technology Holding, KB Home, Group 1 Automotive and Hillenbrand are some such picks.

What’s 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 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 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.

For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/1880069/add-these-5-low-pb-stocks-to-your-portfolio-in-march?art_rec=quote-stock_overview-zacks_news-ID02-txt-1880069

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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