Is it good to buy stocks at a price less than book value

POSTED BY Rajendran ON December 9, 2010 12:27 pm COMMENTS (2)

Hi,

 Is it good idea to buy stocks which are quoting price less than its book value? your view on this. Will it payoff in the long term.

Example:  As per moneycontrol, the book value of RELCOM is 244 and CMP is 125… almost 0.5.

Disclosure: Today I bought 75 Relcom at 125, I am already holding 135 Relcom @257.

 

2 replies on this article “Is it good to buy stocks at a price less than book value”

  1. Atul says:

    Hi Rajendran,

    I think you are referring to Price to Book value (P/B) ratio.

    Keep in mind the denominator is calculated differently by different companies. Book value is supposed to include each and every asset of the company. However some companies consider only major ones and leave minor ones even thought they are important.

    For strong large and mid cap companies P/B ratio should be considered alongwith Dividend yield, P/E,EPS,ROCE and RONW

    Regards

    Atul

  2. HI Rajendran,

    Its good idea to identify a stock which is quoting less than the book value and in long run it may turn into a multi bagger investment. But in my opinion, this shouldn’t be the only metric to evaluate the stock. We need to approach case to case basis.

    Before we take a call, we need to understand as to why this stock is quoting less than its book value.

    Thanks – Siva

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