Price to book value ratio interpretation and derivation. However, the pricetobook and pricetotangiblebook metrics tell a different story. Price book value is a widely used stock evaluation measure. When looking at their pe ratios, you may think the big four u. The scores are based on the trading styles of value, growth. The best that can be said is that a bank s stock is cheap when its trading near or below its tangible book value per share. With the full path of the coronavirus and its impact on supply chains unknown, the risks of the battered stocksmany of which are now trading at or below tangible book value outweigh the. Stocks trading below their book value can give decent. When it comes to evaluating bank stocks, the pe ratio doesnt tell you the whole story. Ill answer generally, because i do not give investment advice or recommend specific stocks on this site.
If a stock is trading perfectly inline with its book value, its pb will be 1. Tangible book has often been a floor under bank stocks. When intangible assets and goodwill are excluded, the ratio is often specified to be price to tangible book value or price to tangible book. Davidson turned bullish, saying he believed the bank will outperform its. How to figure the book value of bank stock finance zacks. One reason for this is wells fargo is relatively less focused on trading activities than its peers, potentially reducing its risk exposures. A bank holding companys tangible book value is its total common equity capital less goodwill, mortgage servicing rights, deferred tax assets, and. Many of the stocks have fallen well below book value yet the industry is well capitalized. The shares were trading just below tangible book value, and for 9. While we believe that most banks are undervalued, capital one cof is at the top of the list.
The analyst has a buy rating on the citi stock, as its the cheapest of the large banks on tangible book value. Many banks shares are trading at or below tangible book value. Many of the stocks have fallen well below book value yet the industry is wellcapitalized. A tangible book value per share tbvps is a method of valuing a company on a pershare basis by measuring its equity after removing any. He says eight of the 22 banks in his coverage traded below tangible book value last week. Book value represents that part of the accounting value of a business that will be left after debts are paid off. Trading below tangible book value was once considered a harbinger of doom for banks, even the stock market itself. Hence, bank of america corporations pricetobook ratio for the period was 1. A bank holding companys tangible book value is its total common equity capital less goodwill, mortgage servicing rights, deferred tax assets, and other intangible assets. The last three times that happenedin summer 1990, early 2009, and august 2011turned out to be. Moving away from retail, oil and gas industry supplier flotek industries inc. The bac stock price hasnt stayed below book value in almost two years. Will bank of america stock dip below book value now.
Investors, however, are concerned that the economic impact of the coronavirus will. The pricetobook ratio, or pb ratio, is a financial ratio used to compare a companys current. The following are the 10 most profitable bank stocks trading below tangible book value, for which yearend data were available friday. Assets such as property and equipment are considered to be tangible assets. Capital one is our pick amongst all of the undervalued banks. Banks falling book value could invite activist investors. Its stated book value discount is also a bit different than some other regional banks because it is valued at more than twice tangible book value.
Bank stocks look like bargains and their dividends are safe, these. Using the pricetobook ratio to value bank stocks the. Citigroup is actually trading for below its book value, if that tells you anything about the risk youre taking on by buying that stock, its. Now, it could instead spell trouble for banks management teams. Bank of americas stock was trading at less than a third of its book value in late 2011 due to rising fears about the quality of the bank s loan portfolio, as well as a spurt of highprofile. Tangible book value is a companys net assets minus goodwill and intangibles. Pb is a stocks share price divided by its book value per share. Us banks trading at the lowest pricetoadjusted tangible book value. I see that in the public comps of your bank valuation model, citi is trading below a 1x p tbv price to tangible book value multiple. Bank stock investors cannot believe that big banks are trading at a significant discount to their tangible book. Meanwhile, several of the large banks are trading well above tangible book.
Tbvps determines the potential value per share of a company in the event that it must liquidate its assets. Bank stocks are notorious for trading at prices below book value per share, even when a bank s revenue and earnings are on the rise. Some value investors have been picking up bank shares only to have them decline further and detract from their performance. Tangible book value per share tbvps is the value of a companys tangible assets divided by its current outstanding shares. Citi is only major bank stock to trade below book value. Last month, the median total return of the banks and. Many bank s shares are trading at or below tangible book value. Time to buy bank of america stock to get defensive, d. As banks grow larger and expand into nontraditional financial. It is referred to by many as the companys liquidation value.
This version includes intangible assets and goodwill, unlike price to tangible book value. Book value can refer to several ways to analyze a business, but when it comes to bank stocks, the book value pertains to the net asset value of the company. The stock trades closer to its book value than cenovus at a pb of 0. Find the latest price book value for bank of america corporation bac. Now trading at an 18% discount to its book value, the. Pb ratios are commonly used to compare banks, because most assets and liabilities of.