For Immediate Release
Chicago, IL – April 27, 2023 – Stocks in this week’s article are Deutsche Bank DB, General Motors GM, Unum Group UNM, PVH Corp PVH and Asbury Automotive Group ABG.
Enhance Your Portfolio with These 5 Low Price-to-Book Sales
When considering valuation metrics, the price-to-earnings (P/E) ratio has always been the obvious choice, as calculations based on earnings are easy and come in handy. However, in the case of companies that are incurring losses or are in an early cycle of development, generating meager or no profits, price-to-sales (P/S) is a good valuation metric. It helps investors identify cheap stocks.
Other than P/E and P/S, the price-to-book ratio (P/B ratio) is also an easy-to-use tool for zeroing in on low-priced stocks that have high-growth prospects.
The P/B ratio is used to calculate 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.
Now let us understand the concept of book value.
The P/B ratio helps to identify low-priced stocks that have high growth prospects. Deutsche Bank, General Motors, Unum Group, PVH Corp and Asbury Automotive Group 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 10 stocks that qualified the screening:
Headquartered in Frankfurt am Main, Deutsche Bank Aktiengesellschaft, also called Deutsche Bank AG, is the largest bank in Germany and one of the largest financial institutions in Europe and the world, as measured by total assets.
Deutsche Bank 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.
DB has a projected 3–5 year EPS growth rate of 6.53%.
General Motors is one of the world’s largest automakers. Headquartered in Detroit, the auto giant held the largest share of the U.S. auto market at 17.09% in 2022. From going bankrupt in 2009 to becoming one of the world’s best-run car companies, General Motors has indeed come a long way.
General Motors has a Zacks Rank #2 and a Value Score of A. The company has a projected 3-5-year EPS growth rate of 9.9%.
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.
Unum Group has a projected 3–5-year EPS growth rate of 7.51%. UNM currently has a Zacks Rank #1 and a Value Score of A.
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 16.08%.
Asbury Automotive is one of the largest automotive retailers of new and used vehicles, and related services in the United States.
Asbury Automotive has a projected 3-5-year EPS growth rate of 18.52%. ABG currently has a Zacks Rank #1 and a Value Score of A.
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For the rest of this Screen of the Week article please visit Zacks.com at: https://www.zacks.com/stock/news/2084722/enhance-your-portfolio-with-these-5-low-price-to-book-stocks
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