We use cookies to understand how you use our site and to improve your experience.
This includes personalizing content and advertising.
By pressing "Accept All" or closing out of this banner, you consent to the use of all cookies and similar technologies and the sharing of information they collect with third parties.
You can reject marketing cookies by pressing "Deny Optional," but we still use essential, performance, and functional cookies.
In addition, whether you "Accept All," Deny Optional," click the X or otherwise continue to use the site, you accept our Privacy Policy and Terms of Service, revised from time to time.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
5 Low Price-to-Book Stocks That Should Be in Your Portfolio Now
Read MoreHide Full Article
Key Takeaways
CVS, SIG, KB, AMG and PAGS feature low P/B ratios and strong projected 3-5-year EPS growth.
All five stocks meet key screens like low P/E, P/S, PEG under 1, and boast solid trading volumes.
Each stock holds a Zacks Rank of 1 or 2 and has a Value Score of A or B, reinforcing their appeal.
Price-to-book ratio or P/B ratio is essentially the ratio of stock price to book value, i.e., how much an investor needs to pay for each dollar of book value of a stock. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
In value investing, it is a common practice to pick stocks that are cheap but fundamentally strong. There are a number of investment styles for finding great stocks at attractive values.
While considering valuation metrics, though price-to-earnings and price-to-sales are the first choices, the P/B ratio is also emerging as a convenient tool for identifying low-priced stocks that have high-growth prospects.
Here’s the formula for P/B ratio:
P/B ratio = market capitalization/book value of equity.
The P/B ratio helps identify low-priced stocks with high growth prospects. CVS Health (CVS - Free Report) , Signet Jewelers (SIG - Free Report) , KB Financial Group (KB - Free Report) , Affiliated Managers Group (AMG - Free Report) and PagSeguro Digital (PAGS - Free Report) 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 such a 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.
5 Low Price-to-Book Stocks
Here are five of the 18 stocks that qualified the screening:
Headquartered in Woonsocket, RI, CVS Health (formerly known as CVS Caremark Corporation) is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care.
Hamilton, Bermuda-based Signet is a retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, the U.K., the Republic of Ireland and the Channel Islands. It is often considered to be the leading retailer of diamond jewelry.
Signet has a projected 3-5-year EPS growth rate of 12.2%.
SIG has a Value Score of A and a Zacks Rank #2 at present
KB Financial Group is a commercial bank in Korea. The company provides credit and related financial services mainly to individuals and small and medium-sized enterprises. It also provides a range of deposit products and related services to individuals and enterprises of all sizes.
KB Financial Group has a projected 3-5-year EPS growth rate of 12.33%. KB currently has a Zacks Rank #2 and a Value Score of B.
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 14.2%.
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 11.3%. PAGS currently has a Zacks Rank #1 and a Value Score of A.
Get the remaining 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.
Image: Bigstock
5 Low Price-to-Book Stocks That Should Be in Your Portfolio Now
Key Takeaways
Price-to-book ratio or P/B ratio is essentially the ratio of stock price to book value, i.e., how much an investor needs to pay for each dollar of book value of a stock. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
In value investing, it is a common practice to pick stocks that are cheap but fundamentally strong. There are a number of investment styles for finding great stocks at attractive values.
While considering valuation metrics, though price-to-earnings and price-to-sales are the first choices, the P/B ratio is also emerging as a convenient tool for identifying low-priced stocks that have high-growth prospects.
Here’s the formula for P/B ratio:
P/B ratio = market capitalization/book value of equity.
The P/B ratio helps identify low-priced stocks with high growth prospects. CVS Health (CVS - Free Report) , Signet Jewelers (SIG - Free Report) , KB Financial Group (KB - Free Report) , Affiliated Managers Group (AMG - Free Report) and PagSeguro Digital (PAGS - Free Report) 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 such a 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.
5 Low Price-to-Book Stocks
Here are five of the 18 stocks that qualified the screening:
Headquartered in Woonsocket, RI, CVS Health (formerly known as CVS Caremark Corporation) is a pharmacy innovation company with integrated offerings across the entire spectrum of pharmacy care.
CVS Health presently has a Zacks Rank #2 and a Value Score of A. The company has a projected 3-5-year EPS growth rate of 11.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
Hamilton, Bermuda-based Signet is a retailer of diamond jewelry, watches and other products. The company operates in the United States, Canada, the U.K., the Republic of Ireland and the Channel Islands. It is often considered to be the leading retailer of diamond jewelry.
Signet has a projected 3-5-year EPS growth rate of 12.2%.
SIG has a Value Score of A and a Zacks Rank #2 at present
KB Financial Group is a commercial bank in Korea. The company provides credit and related financial services mainly to individuals and small and medium-sized enterprises. It also provides a range of deposit products and related services to individuals and enterprises of all sizes.
KB Financial Group has a projected 3-5-year EPS growth rate of 12.33%. KB currently has a Zacks Rank #2 and a Value Score of B.
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 14.2%.
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 11.3%. PAGS currently has a Zacks Rank #1 and a Value Score of A.
Get the remaining 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.
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