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5 Valuable Price-to-Book Stocks to Buy in November
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Key Takeaways
Five stocks, including CNXC and HPE, qualify as potential value investments based on P/B ratios.
The screening combines low P/B, P/S and forward P/E ratios with PEG below 1 and minimum trading volume.
The five stocks have projected 3-5-year EPS growth rates ranging from 5.4% to 35.6%.
Given the decent performance of drug and biotech stocks this year, value analysis is the best approach to identify great bargains. Though price-to-earnings (P/E) and price-to-sales (P/S) valuation tools are more commonly used for stock selection, the price-to-book ratio (P/B ratio) is also a fairly handy tool for identifying high-growth companies selling at low prices.
The price-to-book ratio or P/B ratio is the ratio of the market price of a stock to the book value of its equity. P/B ratio is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
P/B ratio = market capitalization/book value of equity.
This metric can help identify attractively priced stocks with upside potential. Some such stocks are Concentrix (CNXC - Free Report) , Hewlett Packard Enterprise (HPE - Free Report) , Nexa Resources (NEXA - Free Report) , Ultrapar Participacoes S.A. (UGP - Free Report) and Shinhan Financial Group (SHG - Free Report) . Let us understand the concept of book value.
What is Book Value?
There are several ways in 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 went bankrupt immediately. In other words, this is what shareholders would theoretically receive if a company liquidated 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.
Book Value Per Share = (Total Assets – Total Liabilities) ÷ Number of Outstanding Shares
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. Like P/E or P/S ratios, it is always better to compare the P/B ratio 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 13 stocks that qualified for the screening:
Based in Newark, CA, Concentrix Corporation provides technology-enabled business services. Concentrix has a projected 3-5-year EPS growth rate of 5.4%.
Headquartered in Houston, TX, Hewlett Packard Enterprise is a global enterprise technology company. It provides hardware, software and services that help businesses store, process and manage data across on-premise, cloud and edge environments. The company serves enterprises, governments, telecom operators and financial institutions in more than 150 countries.
Hewlett Packard currently has a Zacks Rank #2 and a Value Score of B. The company has a projected 3-5-year EPS growth rate of 35.6%
Luxembourg City, Brazil-based Nexa Resources is an integrated zinc producer. It is engaged in developing and operating mining and smelting assets, primarily in Latin America. NEXA currently has a Value Score of A and a Zacks Rank #1. NEXA has a projected 3-5-year EPS growth rate of 33.8%.
Ultrapar Participacoes S.A., a major Brazilian industrial group, is one of the largest distributors of liquefied petroleum gas in Brazil and a leading producer of petrochemicals and chemicals. Ultrapar is also engaged in the storage and transportation of liquefied petroleum gas and petrochemical and chemical products.
UGP has a Zacks Rank #2 and a Value Score of A. Ultrapar Participacoes has a projected 3-5-year EPS growth rate of 21.4%.
Shinhan Financial Group is Korea's largest financial services company. Shinhan Bank is the Group's flagship subsidiary and, when combined with the recently acquired Chohung Bank, is Korea's second-largest banking operation. Besides banking, SHG has subsidiaries in securities, credit cards, asset management, leasing, bancassurance and project finance.
Shinhan Financial Group has a Zacks Rank #1 and a Value Score of A. SHG has a projected 3-5-year EPS growth rate of 15.3%.
View the Zacks #1 Rank List
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5 Valuable Price-to-Book Stocks to Buy in November
Key Takeaways
Given the decent performance of drug and biotech stocks this year, value analysis is the best approach to identify great bargains. Though price-to-earnings (P/E) and price-to-sales (P/S) valuation tools are more commonly used for stock selection, the price-to-book ratio (P/B ratio) is also a fairly handy tool for identifying high-growth companies selling at low prices.
The price-to-book ratio or P/B ratio is the ratio of the market price of a stock to the book value of its equity. P/B ratio is calculated by dividing the current closing price of the stock by the latest quarter's book value per share.
P/B ratio = market capitalization/book value of equity.
This metric can help identify attractively priced stocks with upside potential. Some such stocks are Concentrix (CNXC - Free Report) , Hewlett Packard Enterprise (HPE - Free Report) , Nexa Resources (NEXA - Free Report) , Ultrapar Participacoes S.A. (UGP - Free Report) and Shinhan Financial Group (SHG - Free Report) . Let us understand the concept of book value.
What is Book Value?
There are several ways in 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 went bankrupt immediately. In other words, this is what shareholders would theoretically receive if a company liquidated 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.
Book Value Per Share = (Total Assets – Total Liabilities) ÷ Number of Outstanding Shares
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. Like P/E or P/S ratios, it is always better to compare the P/B ratio 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 13 stocks that qualified for the screening:
Based in Newark, CA, Concentrix Corporation provides technology-enabled business services. Concentrix has a projected 3-5-year EPS growth rate of 5.4%.
CNXC 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.
Headquartered in Houston, TX, Hewlett Packard Enterprise is a global enterprise technology company. It provides hardware, software and services that help businesses store, process and manage data across on-premise, cloud and edge environments. The company serves enterprises, governments, telecom operators and financial institutions in more than 150 countries.
Hewlett Packard currently has a Zacks Rank #2 and a Value Score of B. The company has a projected 3-5-year EPS growth rate of 35.6%
Luxembourg City, Brazil-based Nexa Resources is an integrated zinc producer. It is engaged in developing and operating mining and smelting assets, primarily in Latin America. NEXA currently has a Value Score of A and a Zacks Rank #1. NEXA has a projected 3-5-year EPS growth rate of 33.8%.
Ultrapar Participacoes S.A., a major Brazilian industrial group, is one of the largest distributors of liquefied petroleum gas in Brazil and a leading producer of petrochemicals and chemicals. Ultrapar is also engaged in the storage and transportation of liquefied petroleum gas and petrochemical and chemical products.
UGP has a Zacks Rank #2 and a Value Score of A. Ultrapar Participacoes has a projected 3-5-year EPS growth rate of 21.4%.
Shinhan Financial Group is Korea's largest financial services company. Shinhan Bank is the Group's flagship subsidiary and, when combined with the recently acquired Chohung Bank, is Korea's second-largest banking operation. Besides banking, SHG has subsidiaries in securities, credit cards, asset management, leasing, bancassurance and project finance.
Shinhan Financial Group has a Zacks Rank #1 and a Value Score of A. SHG has a projected 3-5-year EPS growth rate of 15.3%.