The Economic Times daily newspaper is available online now.

    Smallcap sale! 4 counters trading less than half of book value. Time to buy?

    Synopsis

    A study of BSE500 stocks shows that there are at least 4 smallcap counters that are trading below half of their book value. In other words, their PB ratio has gone below 0.50x. Whenever the indicator slips below 1, the underlying is usually believed to be underpriced by the market. Buying a company's stock for less than the book value is seen as a margin of safety by value investors.

    Smallcap sale! 4 counters trading less than half of book value. Time to buy?Agencies
    NEW DELHI: Besides the much popular price-to-earnings (PE) ratio, value investors hunting for diamonds in the dust often consider price-to-book value or PB ratio as well to calculate whether stocks are cheap enough to buy.

    A study of BSE500 stocks shows that there are at least 4 smallcap counters that are trading below half of their book value. In other words, their PB ratio has gone below 0.50x. Whenever the indicator slips below 1, the underlying is usually believed to be underpriced by the market.

    Buying a company's stock for less than the book value is seen as a margin of safety by value investors.

    "The P/B ratio is particularly useful when applied to capital-intensive businesses, such as utilities/energy companies, metals and financial businesses, which have a significant amount of tangible assets on their books. Book value ignores intangible assets such as a company's brand name, goodwill, patents, and other intellectual property," said Kaizad Hozdar - Investment Advisor, TrustPlutus Wealth.

    While some of the stocks that are trading well below their book value can turn out to be hidden gems, others can prove to be a classic case of value traps.

    "P/B ratios do not directly provide any information on the future ability of the firm to generate profits, which is a critical factor when evaluating the prospects of a business," he said.

    Here's a look at the 4 smallcap stocks that are trading at prices less than half of their book value:


    Maharashtra Scooters

    Multibagger stock Maharashtra Scooters, which is a subsidiary of Bajaj Holdings, is not only trading at a PB of just 0.22 but has also gone up by around 33% in the last one year.

    The smallcap auto stock has been trading in a higher high higher low formation on the weekly charts. For the last 9 weeks, the stock is seen trading in a range of Rs 4350 and Rs 4650. "A bullish move in the stock is possible for targets upto Rs 5,000. One can initiate a buy trade in between the range of Rs 4650-4700 with a stop loss at Rs 4450 on daily closing basis," said Mitesh Karwa of Bonanza Portfolio.

    Indiabulls Housing Finance

    After falling around 40% from its 52-week high level, shares of Indiabulls Housing Finance is trading at a book value of 0.3x.

    Karwa said one can initiate a buy trade in between the range of Rs 100-110 with a stop loss placed at Rs 90 for targets up to Rs 140.

    Uflex
    With a PB of just 3.8x, the stock has doubled in the last three years. The packaging stock was under pressure recently amid a raid by the Income Tax department.

    Technical analysts say fresh long positions should not be initiated in the scrip as the overall technical structure is bearish. "The stock might retrace to levels of Rs 430 as the stock has corrected more than 50% in the last 6 months, but the retracement should not be used as a fresh buying opportunity," Karwa said.

    Gujarat State Fertilizers & Chemicals
    Trading at a PB value of 0.42x, the multibagger stock has failed to perform in the last one year. On the charts, the stock has been trading in a triangle like formation for the last 12 months and the range is seen to be getting smaller after every swing. The support is seen at Rs 120 and resistance at Rs 140.

    Analysts said trade should be taken only after the trading range is broken on either side as until then the stock is expected to behave in a sideways manner.

    (With data inputs from Ritesh Presswala)

    (Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)



    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more


    (What's moving Sensex and Nifty Track latest market news, stock tips and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    Subscribe to The Economic Times Prime and read the Economic Times ePaper Online.and Sensex Today.

    Top Trending Stocks: SBI Share Price, Axis Bank Share Price, HDFC Bank Share Price, Infosys Share Price, Wipro Share Price, NTPC Share Price

    ...more
    The Economic Times

    Stories you might be interested in