A low P/B ratio may mean a stock is undervalued and is a good jumping off point for further analysis. It is limited when valuing companies who have a significant portion of non-physical assets, such as intellectual property, or capital-intensive companies. It can also be distorted by negative factors like high debt levels, or others.
These are the stocks trading closest to their historical low P/B ratios, according to GuruFocus list of Historical Low P/B stocks: Ecolab Inc. (ECL), Global Sources (GSOL) and PetroChina Company (PTR).
Ecolab Inc. (ECL)
Ecolab Inc. (ECL) is traded at a P/B ratio of 3.3, close to its 10-year low of 3.3. It is owned by 11 Gurus.
Ecolab Inc. is the global leader in cleaning, sanitizing, food safety and infection control products and services. Ecolab Inc. has a market cap of $19.09 billion; its shares were traded at around $63.815 with a P/E ratio of 24.4 and P/S ratio of 2.8. The dividend yield of Ecolab Inc. stocks is 1.2%. Ecolab Inc. had an annual average earnings growth of 10.1% over the past 10 years. GuruFocus rated Ecolab Inc. the business predictability rank of 2-star.
In the fourth quarter of 2011, Ecolab’s book value per share jumped to $19.11 from $9.19 the previous year, and it has increased to $19.52 at the end of the second quarter 2012. In 2011, the company’s assets ballooned due to higher cash and cash equivalents and inventory. Its debt also increased – from $1.4 billion in 2010 to $9.3 billion by the fourth quarter of 2011.
The fourth quarter was also the quarter that the company closed its merger with Nalco, the world’s leading water treatment and process improvement company, which added $11.3 billion to its total assets. The increase in cash on its balance sheet was mostly used to redeem Nalco’s outstanding senior notes in January 2012. The majority of the debt was assumed as part of the Nalco merger, and addition debt issued to fund the cash portion of the merger and share repurchases.
In the last year, Ecolab’s share price has increased 27%.
Global Sources (GSOL)
Global Sources Ltd. (Bermuda) (GSOL) is traded at a P/B ratio of 1.3, close to its 10-year low of 1.3. It is owned by four Gurus.
Global Sources Ltd. is one of the world's largest and most trusted neutral enablers of global merchandise trade. Global Sources Ltd. (Bermuda) has a market cap of $196.1 million; its shares were traded at around $6.39 with a P/E ratio of 6.8 and P/S ratio of 0.9. Global Sources Ltd. had an annual average earnings growth of 15.7% over the past 10 years. GuruFocus rated Global Sources Ltd. the business predictability rank of 3.5-star.
Global Sources’ P/B is 1.3, but has remained around that level since the beginning of the year. In the last ten years, the company has had a prodigious book value per share growth rate of 30.1%. Its total assets have also steadily increased, faster than liabilities.
In the last 12 months, the company’s book value grew 17.1%, while the stock price declined almost 13%.
PetroChina Company (PTR)
PetroChina Company Limited (ADR) (PTR) is traded at a P/B ratio of 1.2, close to its 10-year low of 1.2. It is owned by 6 Gurus.
PetroChina is engaged in a broad range of petroleum-related activities, including: the exploration, development and production of crude oil and natural gas; refining, transportation, storage and marketing, including import and export, of crude oil and petroleum products; production and sale of chemical products; and the transmission, marketing and sale of natural gas. PetroChina Company Limited (adr) has a market cap of $220.56 billion; its shares were traded at around $131.15 with a P/E ratio of 10.4 and P/S ratio of 0.7. The dividend yield of PetroChina Company Limited (adr) stocks is 5.6%. PetroChina Company Limited (adr) had an annual average earnings growth of 13.6% over the past 10 years. GuruFocus rated PetroChina Company Limited (adr) the business predictability rank of 4-star.
PetroChina’s book value has increased at a rate of 18% over the last ten years, and grew 18.4% in the last 12 months. The company’s stock gained 13% at the same period. PetroChina’s book value per share has only varied by a few tenths of a percentage point since mid 2009.
China’s weak economy has affected PetroChina’s earnings. In the second quarter, the company reported its lowest results in four quarters at $3.6 billion, compared to $6.2 billion the prior quarter.
To see more stocks at their historical low P/B ratios, see GuruFocus’ Value Strategies of Stocks That Are Traded at Historical Low P/B.