Why stocks trade below book value?

Discussion in 'Stocks' started by turkeyneck, Jan 9, 2008.

  1. the simple answer is that people expect them to lose more money.
  2. Tading below book value is a very bad sign for an stock/company.

    Profitable companies trade their stock WAY ABOVE book value, some examples:

    Goldman Sachs: http://finance.yahoo.com/q/ks?s=GS

    General Electric:


    Berkshire Hathaway (Warren Buffet):

    and so on...
  3. When will stocks trading below book value become attractive to the value guys for dumpster diving?
  4. In bsc case, it is the level 3 that we are concerned with. Leverage and margin. The same with homebuilders and their inventories. Otherwise, they are great companies.

    Now this country is one big level 3 asset that is trading well well below book on super duper margin on steroids. every sovereign fund around the world is now finding this out the hard way.
  5. toc


    Asset - Libalities = Owner's Equity

    OE/ # of common shares outstanding = Bk Value.

    Below book value means either Assets are inflated or Libalities are deflated. Inflated Assets like too much Goodwill on the balance sheet. Deflated Libalities might be some contingency Libality/event that the market knows (like law suit, bad product reviews which will produce loss etc.) and has discounted it into the price.

    There is also a section called Other Comprehensive Income which might have lots of Libalities like Pension costs which are not discounted into the above equation.
  6. toc


    many financial firms have foreign currency, derivative related exposures which can create a huge contigency related black hole on their net values.
  7. The market is pricing in write down that will devalue the book value of Bear Sterns.
  8. At what price will the value guys start picking?
  9. I don't know if anyone answered correctly as I don't have time to read the entire thread. In response to the original post.

    The simple answer is that book value is in these situations not being able to be calculated accurately due to impending unclear negative financial impacts to the balance sheet that will occur in the future.

    They don't know what is out there and what amount will ultimately be written off so a stock can and does often trade below the book value you might find listed in the financial statements.

    I have been trading to the short side the financial s and housing/builders for the past many months. Many builders are trading below book.

    One thing to be clear about. Just because a stock is trading below book value DOES NOT mean it is undervalued or a good investment.
    #10     Jan 9, 2008