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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: JohnyP who wrote (66516)	2/11/2021 7:33:40 PM
From: E_K_S	1 Recommendation Recommended By petal Read Replies (1) \| Respond to of 78821

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

To: JohnyP who wrote (66516)	2/11/2021 8:35:11 PM
From: Paul Senior	2 Recommendations Recommended By E_K_S sjemmeri Read Replies (1) \| Respond to of 78821

"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.

To: JohnyP who wrote (66516)	2/12/2021 6:37:25 AM
From: petal	Respond to of 78821

Yes, in some cases one must takes intangibles into account; as Paul pointed out, KO is a classic example. Then you can at least, as he indeed also noted, compare the book value to it's historical &/ recent average, as well as comparing BV to Tang.BV, so that you know what you are buying. I have no problem with high BV per se, as long as I know why it's there and that the reason for its being there is a good one. (However, in practice, such a "warranted high P/B" is rare to find, and I mostly stay well away from it...)