|New Threads Only:|
|New Threads & Replies:|
Forum List » Guru News and Commentaries|
Guru News, Stock picks and commentaries
Professor Aswath Damodaran's Modified Low Price-to-Book Screen
Posted by: Mark Lin (IP Logged)
Date: November 9, 2012 10:48AM
Aswath Damodaran is a professor of finance at NYU Stern. He is the author of several widely used academic and practitioner texts on valuation, corporate finance and investment management and is regarded as an authority on valuation.
He has also written books about investing, notably, "Investment Philosophies and Investment Fables." In Chapter 4 of "Investment Fables: Exposing the Myths of 'Can't Miss' Investment Strategies," he discusses low P/B stocks.
He found the following issues with low P/B stocks:
- Low book value multiples may be well-deserved if companies earn and are expected to continue earning low returns on equity.
- Transactions costs associated with buying stocks that trade at low prices are often much higher than average or high priced stocks.
- Higher returns earned by low price to book stocks can be explained by the fact that they are riskier than average.
He suggested the following improvements to the traditional low P/B screen (P/B< 1):
- Minimum return on equity of 10% (valuation mismatch with high ROE stocks trading at low P/B)
- Minimum price constraint of US$2 (to decrease transactions costs)
- Beta< 1.5 (low risk in the CAPM sense)
- Debt to capital ratios< 70% (low financial risk)
The following stocks passed the Damodaran Modified Low P/B Screen:
All the stocks had zero debt, with some usual suspects which appeared in the Martin Whitman screen.
Stocks Discussed: CSWC, HGG, MAXY, PRLS, STLY, SUP, VRNM,
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.