How to use the book value to get your hands on a bargain stock

Julie Brownlee, Fsp Invest, 28 Sep. 2015

Tags: book value, what is book value, how to calculate book value, how to find cheap stocks, tangible book value

The lower the price you pay for a share, the higher your potential profits are.

So how can you find out if a stock is trading at a low price?

One thing you can do is look at a company’s book value…

What is a company’s book value?

A company’s book value is also known as its net asset value (NAV), equity or shareholders’ funds.

The book value is the value of all of a company’s assets minus all of its liabilities (debts).

You can find a company’s book value in the balance sheet of its annual report.

You can use the book value to estimate what a company would be worth if you sold all its assets at their balance sheet values. It’s a common way to value stocks like banks, house builders and insurance companies.

The problems using a company’s book value

One issue with using the book value is if a company has a lot of intangible assets, such as goodwill. An example of goodwill is the value of a brand, which is hard to measure the monetary value of.

The intangible assets may not have any value or the level of value a company places on them.

To deal with this, you can remove the value of intangible assets from a company’s book value to give you the tangible book value. This only includes hard assets like cash, stocks, buildings, property, land, etc.

How to use the book value to check if a stock’s undervalued

If you calculate a company’s tangible book value and divide it by the number of shares in circulation, you get the tangible book value per share.

If you find that a share is trading for far less than its tangible book value, you may have found yourself a cheap stock.

So there you have it. How to use the book value to get your hands on a bargain stock.

*********** Hot off the press ************

This is what helps me spot ‘better’ stocks before other investors do

My job is simple to explain: Find great South African stocks with huge potential. Buy them while they’re cheap. Watch them fly. Sell them when they’re expensive. Bank the profit.

It’s not quite as simple to do – But here’s the thing: you don’t have to be a geologist, former BHP employee, or mining ‘insider’ to uncover these superstar resource stocks-in-waiting. I can tell, pretty much, whether a stock is worth a punt by looking for a few ‘tell-tale’ figures on its balance sheet.

Click here to find out more…


Related QA

d.c.heger asked:
MY QUESTION IS – I bought Bitcoin & Etherium some time ago – at first they grew nicely but now they are lower than what I paid for them. Should I [read more]
Published at 04 Apr. 2018 in: Investing 5 shares due to rocket 1 Answer
kavesh.maharaj.73 asked:
Hi Josh. I would like some advice on TFSA. I can get an interest rate of 7.8% nominal at a bank if I invest the R33k upfront in a fixed deposit [read more]
Published at 19 Mar. 2018 in: Investing Tax free savings vehicle 2 answers
kavesh.maharaj.73 asked:
Hi Josh Quantum wants to buy back shares from shall investors at what I think is a low price of around R3.86. You tipped the share in February [read more]
Published at 14 Mar. 2018 in: Investing Real wealth 5 answers
elizastrydom asked:
Hi Timon I am interested in registering for your Red Hot Storm Trader service. I am already a Red Hot Penny Shares investor. My question is [read more]
Published at 28 Feb. 2018 in: Investing Trading platform and broker 1 Answer
ManuE asked:
I have an interest in investing in Bitcoin, I just don't know how. If I buy Bitcoin with R15 000, how much can make (Return On Investment)? [read more]
Published at 25 Feb. 2018 in: Investing Investment 1 Answer

Related articles:




Youtube Twitter Facebook

Connect with us:    

  • Accelerated Investor
  • Accessories
  • Accountancy