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Strategies & Market Trends : Value Investing
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To: JohnyP who wrote (66516)2/11/2021 7:33:40 PM
From: E_K_S1 Recommendation

Recommended By
petal

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Book Value is not the metric to value the company and one has to rely on cash flows or income.
I think it depends on the sector especially for REITs and/or where the company has (1) large land assets; farm land, mines. timber and (2) long-term capital assets like buildings. Land is not depreciated but buildings and capital assets are. I find stated BV useful to compare the real estate valuations among different REITs as a first screen of value. Also, stated BV should carry the real estate value at cost not market so if the property has been carried on the books a long time (say > 10 years), stated BV may understate the actual value of that real estate. This can be a large value if it is a REIT or company owned real-estate franchise (like M) where properties have been on the books for decades.

Mines, timber and oil assets typically will have some type of depletion allowance that reduces BV. Significant company charges or changes to the reserve valuation can also impact stated BV.

I then will look at the FCF over several years, review the company's debt profile (use debt/equity) and like to see that decreasing and positive if management pays down some debt from their FCF.

So, for REITs (as described above), stated BV is very informative for me and if Price/BV is really high, I may move on and look at other REIT candidate companies.

EKS
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