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There are several different ways to find value stocks. Among these, the most popular are price-to-earnings ratio (P/E) and price-to-sales ratio (P/S). However, investors often overlook the price-to-book ratio (P/B ratio), which, 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 with high growth prospects. General Motors Company,Unum Group, Canadian Solar, Energy Transfer and The Greenbrier Companies 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 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 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.
Here are five of the nine stocks that qualified the screening:
Headquartered in Detroit, General Motors is one of the world’s largest automakers. General Motors, along with its strategic partners, produces, sells and services cars, trucks and parts under four core brands — Chevrolet, Buick, GMC and Cadillac. General Motors assembles passenger cars, crossover vehicles, light trucks, sport utility vehicles, vans and other vehicles.
General Motors currently has a Zacks Rank #2 and a Value Score of A.
General Motors has a projected 3-5-year EPS growth rate of 10.02%.
Headquartered in Chattanooga, TN, Unum Group was created following the June 1999 merger of Provident Companies, Inc. and Unum Corporation. Along with disability insurance, the company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. UNM presently has a Zacks Rank #2 and a Value Score of A. The company has a projected 3-5-year EPS growth rate of 8.0%.
Ontario, Canada-based Canadian Solar is a leading manufacturer of solar photovoltaic modules and a provider of solar energy and battery energy storage solutions. The company also develops utility-scale solar power and battery energy storage projects with a geographically diversified pipeline in various stages of development.
CSIQ has a Zacks Rank #2 and a Value Score of A. CSIQ has a projected 3–5-year EPS growth rate of 25.0%.
Based in Dallas, TX, Energy Transfer owns and operates diversified portfolios of energy assets, primarily in the United States. It has a Zacks Rank #2 currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
ENS has a Value Score of A. EnerSys has a projected 3–5-year EPS growth rate of 25.8%.
Headquartered in Lake Oswego, OR, The Greenbrier Companies is a leading supplier of transportation equipment and services to the railroad and related industries. It also engages in complementary leasing and services activities.
The Greenbrier Companies has a Zacks Rank #2 and a Value Score of A at present. GBX has a projected 3-5-year EPS growth rate of 18.70%.
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.
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 include General Motors, Unum, Canadian, Energy Transfer and Greenbrier
For Immediate Release
Chicago, IL – August 7, 2024 – Stocks in this week’s article are General Motors Company (GM - Free Report) , Unum Group (UNM - Free Report) , Canadian Solar (CSIQ - Free Report) , Energy Transfer (ET - Free Report) and The Greenbrier Companies (GBX - Free Report) .
Buy These 5 Low Price-to-Book Stocks in August
There are several different ways to find value stocks. Among these, the most popular are price-to-earnings ratio (P/E) and price-to-sales ratio (P/S). However, investors often overlook the price-to-book ratio (P/B ratio), which, 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 with high growth prospects. General Motors Company,Unum Group, Canadian Solar, Energy Transfer and The Greenbrier Companies 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 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 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.
Here are five of the nine stocks that qualified the screening:
Headquartered in Detroit, General Motors is one of the world’s largest automakers. General Motors, along with its strategic partners, produces, sells and services cars, trucks and parts under four core brands — Chevrolet, Buick, GMC and Cadillac. General Motors assembles passenger cars, crossover vehicles, light trucks, sport utility vehicles, vans and other vehicles.
General Motors currently has a Zacks Rank #2 and a Value Score of A.
General Motors has a projected 3-5-year EPS growth rate of 10.02%.
Headquartered in Chattanooga, TN, Unum Group was created following the June 1999 merger of Provident Companies, Inc. and Unum Corporation. Along with disability insurance, the company provides long-term care insurance, life insurance, employer- and employee-paid group benefits and related services. UNM presently has a Zacks Rank #2 and a Value Score of A. The company has a projected 3-5-year EPS growth rate of 8.0%.
Ontario, Canada-based Canadian Solar is a leading manufacturer of solar photovoltaic modules and a provider of solar energy and battery energy storage solutions. The company also develops utility-scale solar power and battery energy storage projects with a geographically diversified pipeline in various stages of development.
CSIQ has a Zacks Rank #2 and a Value Score of A. CSIQ has a projected 3–5-year EPS growth rate of 25.0%.
Based in Dallas, TX, Energy Transfer owns and operates diversified portfolios of energy assets, primarily in the United States. It has a Zacks Rank #2 currently. You can see the complete list of today’s Zacks #1 Rank stocks here.
ENS has a Value Score of A. EnerSys has a projected 3–5-year EPS growth rate of 25.8%.
Headquartered in Lake Oswego, OR, The Greenbrier Companies is a leading supplier of transportation equipment and services to the railroad and related industries. It also engages in complementary leasing and services activities.
The Greenbrier Companies has a Zacks Rank #2 and a Value Score of A at present. GBX has a projected 3-5-year EPS growth rate of 18.70%.
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/stock/news/2316708/buy-these-5-low-price-to-book-stocks-in-august
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.