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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 Corp., PVH Corp., Centene,Paysafe Ltd. and HF Sinclair Corp. 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.
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.
Get the rest of the stocks on the list and startputting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting 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.
Since 2000, our top stock-picking strategies have blown away the S&P's +6.2 average gain per year. Amazingly, they soared with average gains of +46.4%, +49.5% and +55.2% per year. Today you can access their live picks without cost or obligation.
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.
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Zacks.com featured highlights Select Medical, PVH, Centene, Paysafe and HF Sinclair
For Immediate Release
Chicago, IL – November 6, 2023 – Stocks in this week’s article are Select Medical Holdings Corp. (SEM - Free Report) , PVH Corp. (PVH - Free Report) , Centene (CNC - Free Report) , Paysafe Ltd. (PSFE - Free Report) and HF Sinclair Corp. (DINO - Free Report) .
5 Low Price-to-Book Stocks to Buy for 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 Corp., PVH Corp., Centene,Paysafe Ltd. and HF Sinclair Corp. 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.
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.
Get the rest of the stocks on the list and startputting this and other ideas to the test. It can all be done with the Research Wizard stock picking and backtesting 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/stock/news/2177877/5-low-price-to-book-stocks-to-buy-in-november
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.
Disclosure: Performance information for Zacks’ portfolios and strategies are available at: https://www.zacks.com/performance.
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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.