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Zacks.com featured highlights include: Ford Motor Co., General Motors Co., KB Home, Group 1 Automotive and Signet Jewelers Ltd - Yahoo Finance

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For Immediate Release

Chicago, IL – January 25, 2022 – Stocks in this week’s article are Ford Motor Co. F, General Motors Co. GM, KB Home KBH, Group 1 Automotive GPI and Signet Jewelers Ltd. SIG.

5 Promising Price-to-Book-Value Stocks with Solid Prospects

Among valuation metrics, price-to-earnings (P/E) and price-to-sales (P/S) are more commonly used for stock selection. This is because calculations based on earnings and to some extent sales are easy and come in handy. However, the price-to-book ratio (P/B ratio) has emerged as a convenient tool for identifying low-priced stocks with high-growth prospects.

The P/B ratio is used to calculate how much an investor needs to pay for each dollar of the 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.

P/B ratio = market capitalization/book value of equity

The P/B ratio helps to identify low-priced stocks that have high-growth prospects.Ford Motor Co., General Motors Co., KB Home, Group 1 Automotive and Signet Jewelers Ltd. are some such picks.

What’s 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 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 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.

For the rest of this Screen of the Week article please visit Zacks.com at: https://ift.tt/3G3LfEp

Disclosure: Officers, directors and/or employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material.

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Strong Stocks that Should Be in the News

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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://ift.tt/1NQALJw for information about the performance numbers displayed in this press release.


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Ford Motor Company (F) : Free Stock Analysis Report
 
Signet Jewelers Limited (SIG) : Free Stock Analysis Report
 
General Motors Company (GM) : Free Stock Analysis Report
 
KB Home (KBH) : Free Stock Analysis Report
 
Group 1 Automotive, Inc. (GPI) : Free Stock Analysis Report
 
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Zacks.com featured highlights include: Ford Motor Co., General Motors Co., KB Home, Group 1 Automotive and Signet Jewelers Ltd - Yahoo Finance
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