Alexandria (ARE) reminds me of tangible book value (ARE trades below tangible book value). , a metric with which I am dealing with, wondering about.
Sorry, rambling here.
On the one hand I am reminded of bruwin's opinion, which is something like: tangible book value is an acccounting number. It doesn't mean that is what the company is worth. For example the tangible assets of work-in-progress might be better valued at scrap or near nothing if the product produced does not sell. Further, we would really only know what tangible book value really is if the company went bankrupt and assets sold off. If the company just continues to have sales and revenues, what's the point of considering tangible book value and saying wow, the stock is below tangible book value?
My assumption has been that stocks fluctuate and sometimes they fluctuate around tangible book value. If I can buy a stock at 15% below book value and sell it sometime later when sales/earnings increase, tangible book value increases, and the stock trades again at or above book value, then I should do ok. Stated book value itself, is a metric that Graham has sometimes recommended (industrial stocks).
Some stocks almost never trade at close to tangible book value. Would that now be C at .48 with 10-year historical median .88? Could I expect maybe the stock to trade eventually at say a more historically reasonable .75 tangible bv? C seems so complex to me, I have no confidence that the stock would climb or that tangible book value really is tangible there. I bought insurance company NWLI which always (until now) traded below tangible book value. But trading at 50% of a growing tangible book value at times seemed like that was way too low. Took maybe 15 years for someone to final wrest control of the company from controlling/owner stockholder family. (Deal not completed; looks like at slightly below tangible book value)
Anyway, I'm noticing a few of the companies I'm looking at or owning are trading way below tangible book value (50% of). That makes them different from my usual "it's trading below tangible book value, but it should again, as in past, trade above book value. Or the ratio will hold, and growing tangible book value will bring up the stock price."
One such different company is shipping company DAC. finance.yahoo.com about $64 with tangible book value of $141 and Graham number at $298. Theoretically (?), shouldn't this be a screaming buy for somebody like me who uses tangible book value as a metric? It's a shipping company with erratic earnings, and maybe tangible book value of ships should realistically be replaced with scrap value of ships to determine underlying value of company. I have some shares, have recently bought more, but I just cannot believe I can rely on such a discrepancy between stock and tangible value to place anything but just my usual small bet on the company. |
