SI
SI
discoversearch

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor.  We ask that you disable ad blocking while on Silicon Investor in the best interests of our community.  If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.
Strategies & Market Trends : Value Investing
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  
To: Oliver Hellwig who wrote (1390)6/21/1997 9:39:00 AM
From: James Clarke   of 78748
 
Price/Book and ROE
The price to book value ratio and the return on book equity should have a close mathematical relationship. When one is high, the other one should be as well. I like low price/book stocks, but be VERY careful screening for low price/book and high ROE. What that screen kicks out are going to be a few gems and a lot of "falling knives", in which today's high ROE is collapsing. Remember, high ROE is only sustainable if there are strong barriers to entry or an insurmountable competitive advantage. These are few and far between.

As tempting as it is to buy high ROE stocks, I would argue that you should screen for the opposite. Stocks with lower ROE than they have historically attained may be at the bottom of a cycle, or susceptible to a meaningful change in management. You're going to find a lot of dogs in this category, but you'll probably find more "fallen angels" than "falling knives".

My main point is this. If you are going to buy high ROE stocks, your research has to focus on the sustainability of that high ROE.
Report TOU ViolationShare This Post
 Public ReplyPrvt ReplyMark as Last ReadFilePrevious 10Next 10PreviousNext  

HomeMailHotSubjectMarksPeopleMarksKeepersSettings
Terms Of UseContact UsCopyright/IP PolicyPrivacy PolicyAbout UsFAQAdvertise on SI
© 2025 Knight Sac Media.  Data provided by Twelve Data, Alpha Vantage, and CityFALCON News