The price to book (P/B) ratio is one of the most commonly used stock valuation metrics. To calculate this ratio you simply take the total market capitalization and divide by the book value of the company. Historically, companies with low P/B ratios have outperformed companies with higher P/B ratios over the long term. This allows the P/B ratio to be used as a way to find value stocks.
Like all simple ratios, the P/B ratio is nowhere near perfect. The book value includes intangible assets such as goodwill, patents, brand name, etc., which are inherently difficult (if not impossible) to value. These types of assets can be excluded, yielding the tangible book value, which may be more useful in certain cases. Another issue is that assets are typically recorded at-cost on the balance sheet instead of at-market. This can be especially inaccurate for assets like real estate that can appreciate in value significantly over time.
Corning Incorporated (NYSE:GLW)
The first company I’ll look at is Corning, which I’ve written about before. Using data from its most recent quarterly report here are the relevant figures from the balance sheet.
| Type | Value |
|---|---|
| Current Assets | $9,695 |
| Tangible Non-current Assets | $18,184 |
| Non-tangible Non-current Assets | $1,496 |
| Total Tangible Assets | $27,879 |
| Total Assets | $29,375 |
| Total Liabilities | $7,842 |
| Book Value | $21,533 |
| Tangible Book Value | $20,037 |
All values except ratios in millions USD
Corning is trading at a discount to both the book value and the tangible book value. My previous article on Corning laid out an argument for Corning being undervalued based on a discounted cash flow calculation, so the low P/B ratio only makes the argument stronger. Historically Corning has traded at far higher P/B ratios, as can be seen from the chart below.
GLW Price / Book Value data by YCharts
While there’s no guarantee that Corning will revert to the P/B values of the past, currently the ratio is below the lowest value from the financial crisis in 2009. There are a lot of signs pointing to Corning being undervalued.
Bunge Ltd (NYSE:BG)
Bunge is a global agribusiness and food company, recording $60 billion in sales in 2012. Relevant figures from the most recent quarterly report are shown below.
| Type | Value |
|---|---|
| Current Assets | $14,065 |
| Tangible Non-current Assets | $9,370 |
| Non-tangible Non-current Assets | $646 |
| Total Tangible Assets | $23,435 |
| Total Assets | $24,081 |
| Total Liabilities | $12,788 |
| Book Value | $11,293 |
| Tangible Book Value | $10,647 |
All values except ratios in millions USD
