"If anything, for companies with high goodwill, Book Value is not the metric to value the company and one has to rely on cash flows or income."
I'm not sure what "to value the company means" here.
To me, p/bv can give an indication of when a stock is cheap, relatively cheap compared to its history. Somebody could have bought Coke (KO) in 2010 and/or 2012 when its p/bv was relatively low (compared to previous years). The stock price was low then too (relative to its recent history), maybe also suggesting a buying opportunity. In subsequent years KO's relative p/bv grew quite a bit (greater than past history), so that offerered the perplexing problem whether to sell or not. In retrospect, holding on was the better profitable decision.
I mention KO as an example, because that's likely the classic case of Buffett vs. Graham regarding companies with lots of intangibles.
The argument that bv or tangible book value either has meaning or has no meaning regarding a company's value if the company should go bk (the alleged "margin-of-safety" idea of bv) -- those arguments for/against have no real relevance to me. I view it as a red herring. That is, the false focus on liquidating value which somebody always must mention. Of all the companies I've bought, very few have gone bk. I don't recall low p/tangible book helping me or the company in those situations. Just saying: I've used price-to-book as a stock selection tool for decades, and overall I'm satisfied with the results. |
