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Choose These 5 Price-to-Book Value Stocks for High Returns
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 the 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 the P/S ratio is a better choice is that it looks at sales rather than earnings like the P/E ratio does. However, the 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 capitalization/book value of equity
The P/B ratio helps to identify low-priced stocks that have high growth prospects. Vishay Intertechnology, Group 1 Automotive, Celestica, Huntsman Corp. and Signet Jewelers Ltd. are some such stocks.
Now let us understand the concept of book value.
What's 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 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.
Here are our five picks out of the 16 stocks that qualified the screening:
Celestica is one of the largest electronics manufacturing services companies in the world, serving the computer and communications sectors.
Celestica has a Zacks Rank #2 and a Value Score of A. Celestica has a projected 3–5 year EPS growth rate of 15.44%.
Vishay Intertechnology is a global manufacturer and supplier of semiconductors and passive components. Vishay Intertechnology is benefiting from strength across its resistor, diode, MOSFET, capacitor, inductor and opto product lines as well as expanding manufacturing capacities.
Vishay Intertechnology has a projected 3-5 year EPS growth rate of 22.71%. Vishay Intertechnology currently has a Zacks Rank #2 and a Value Score of A.
Group 1 Automotive is a leading automotive retailer. Through its dealerships, the firm sells new and used cars and light trucks. Apart from selling new and used vehicles, Group 1 Automotive offers vehicle financing and insurance and service contracts.
Group 1 Automotive has a projected 3-5-year EPS growth rate of 14.19%. GPI currently has a Zacks Rank #2 and a Value Score of A.
Huntsman is among the world's largest manufacturers of differentiated and commodity chemical products. HUN markets its products to a diverse group of industrial and consumer customers. Huntsman benefits from its investment in downstream businesses and differentiated product innovation.
It has a projected 3-5 year EPS growth rate of 12.47%.
Signet Jewelers is a retailer of diamond jewelry, watches as well as other products.
Signet Jewelers has a projected 3-5-year EPS growth rate of 8%. Signet Jewelers currently has a Zacks Rank #1 and a Value Score of A.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
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Zacks.com featured highlights Vishay Intertechnology, Group 1 Automotive, Celestica, Huntsman and Signet Jewelers
For Immediate Release
Chicago, IL – June 16, 2022 – Stocks in this week’s article are Vishay Intertechnology (VSH - Free Report) , Group 1 Automotive (GPI - Free Report) , Celestica (CLS - Free Report) , Huntsman Corp. (HUN - Free Report) and Signet Jewelers Ltd. (SIG - Free Report) .
Choose These 5 Price-to-Book Value Stocks for High Returns
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 the 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 the P/S ratio is a better choice is that it looks at sales rather than earnings like the P/E ratio does. However, the 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 capitalization/book value of equity
The P/B ratio helps to identify low-priced stocks that have high growth prospects. Vishay Intertechnology, Group 1 Automotive, Celestica, Huntsman Corp. and Signet Jewelers Ltd. are some such stocks.
Now let us understand the concept of book value.
What's 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 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.
Here are our five picks out of the 16 stocks that qualified the screening:
Celestica is one of the largest electronics manufacturing services companies in the world, serving the computer and communications sectors.
Celestica has a Zacks Rank #2 and a Value Score of A. Celestica has a projected 3–5 year EPS growth rate of 15.44%.
Vishay Intertechnology is a global manufacturer and supplier of semiconductors and passive components. Vishay Intertechnology is benefiting from strength across its resistor, diode, MOSFET, capacitor, inductor and opto product lines as well as expanding manufacturing capacities.
Vishay Intertechnology has a projected 3-5 year EPS growth rate of 22.71%. Vishay Intertechnology currently has a Zacks Rank #2 and a Value Score of A.
Group 1 Automotive is a leading automotive retailer. Through its dealerships, the firm sells new and used cars and light trucks. Apart from selling new and used vehicles, Group 1 Automotive offers vehicle financing and insurance and service contracts.
Group 1 Automotive has a projected 3-5-year EPS growth rate of 14.19%. GPI currently has a Zacks Rank #2 and a Value Score of A.
Huntsman is among the world's largest manufacturers of differentiated and commodity chemical products. HUN markets its products to a diverse group of industrial and consumer customers. Huntsman benefits from its investment in downstream businesses and differentiated product innovation.
HUN currently sports a Zacks Rank #1 and has a Value Score of A. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
It has a projected 3-5 year EPS growth rate of 12.47%.
Signet Jewelers is a retailer of diamond jewelry, watches as well as other products.
Signet Jewelers has a projected 3-5-year EPS growth rate of 8%. Signet Jewelers currently has a Zacks Rank #1 and a Value Score of A.
Get the rest of the stocks on the list and start putting this and other ideas to the test. It can all be done with the Research Wizard stock picking and back testing software.
The Research Wizard is a great place to begin. It's easy to use. Everything is in plain language. And it's very intuitive. Start your Research Wizard trial today. And the next time you read an economic report, open up the Research Wizard, plug your finds in, and see what gems come out.
Click here to sign up for a free trial to the Research Wizard today.
For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/amp/stock/news/1939146/choose-these-5-price-to-book-value-stocks-for-high-returns
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.
About Screen of the Week
Zacks.com created the first and best screening system on the web earning the distinction as the "#1 site for screening stocks" by Money Magazine. But powerful screening tools is just the start. That is why Zacks created the Screen of the Week to highlight profitable stock picking strategies that investors can actively use.
Strong Stocks that Should Be in the News
Many are little publicized and fly under the Wall Street radar. They're virtually unknown to the general public. Yet today's 220 Zacks Rank #1 "Strong Buys" were generated by the stock-picking system that has more than doubled the market from 1988 through 2016. Its average gain has been a stellar +25% per year. See these high-potential stocks free >>.
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Join us on Facebook: https://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Contact: Jim Giaquinto
Company: Zacks.com
Phone: 312-265-9268
Email: pr@zacks.com
Visit: https://www.zacks.com/
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performance for information about the performance numbers displayed in this press release.