I don't look too much at book value, unless a stock is selling at a substantial discount to book value (i.e. 65-70%, and it's earnings are growing. If these conditions are present, jump on it! Because, that also means book value is growing rapidly, and Wall Street has overlooked the stock.
A couple microcap stocks where I did quite well are energy stocks Petroleum Development (PETD)and Evergreen Resources (EVER). I initially bought both of these at 65% of book value, but what caught my eye was agressive drilling programs, restructuring or a good management with a track record of success in drilling. Evergreen Resources has tripled since I bought it, and Petroleum Resources quintupled before I sold it.
I have seen other stocks that sold at a substantial discount of book value for a reason: they were dogs that were not going anywhere. Remember that if a company is losing money and has little chance to turn around, the book value will decrease every year. Not good investments.
In the case of Biosource, I think that the low P/E relative to prospective growth in earnings is a better cusion than book value. It may take a while for the fundamentals to catch up to the intrinsic value, but eventually it will. On the flip side, the price already factors in selling, bad news, etc., so I don't see that much down potential. |
