Stocks trading below book value are there for a reason. No one likes them because, for example, earnings this year are terrible. Or it may be the case that large institutional investors are simply avoiding a sector as a whole and this company belongs to that sector. Some of these are too small for the big funds so they’re just skipped in research.
The other side of the coin is such companies are showing up on other screens as possible buyout or merger candidates. When a stock drops below book and it remains a going concern, sometimes other businesses in the same sector find them, well, valuable. None of this is guaranteed, but that’s the attraction of “below book” stocks that seem unwanted and unloved.
Here a four that may fit the profile.
Eagle Bulk Shipping
Eagle Bulk Shipping Inc. (EGLE, Financial) is involved in marine shipping or, as its website puts it, “providing optimized global transportation of drybulk commodities.” With headquarters in Stamford, Connecticut and worldwide operations, the stock is now trading at a 15% discount to its book value. The price-earnings ratio of just 6 is deeply below that of the stock market as a whole.
The price-sales ratio is 1.2 and the price-to-free cash flow ratio is 4.28. Earnings per share this year are off by 59%. The past five-year earnings per share growth rate is positive at 69.90%. Eagle Bulk Shipping’s long-term debt exceeds its shareholder equity. The dividend yield of 19.79% is so high that it may call into question whether it can continue at that level. Average daily volume is light at about 230,000 shares. The GuruFocus summary of financials looks like this:
Horace Mann Educators
Horace Mann Educators Corp. (HMN, Financial) is in the property and casualty insurance business, as well as supplemental life and student loans. The Springfield, Illinois-based company is trading with a price-earnings ratio of 10 and at 87% of its book value. The price-sales ratio is 1.13 and price-to-free cash flow ratio is 12.93.
Earnings per share this year are negative by 29.4%. The past five-year earnings record is positive by 7.10%. Investors are paid a 3.35% dividend yield. Average daily volume is light for a New York Stock Exchange-listed company at about 189,000 shares. GuruFocus' financials summary of Horace Mann Educators is here:
ViacomCBS
ViacomCBS Inc. (VIAC, Financial) is a Nasdaq-traded entertainment company whose stock is now available for purchase at a 2% discount to book value. The price-earnings ratio sits at a relatively low (for the sector) 6.6. This year’s earnings per share growth is -26%. The past five-year earnings per share growth is a slow 3.3%.
The amount of long-term debt exceeds shareholder equity. ViacomCBS pays a 3.07% dividend. The short float of 8.58% is a relatively high level – any rally from forced short covering might be fueled by such a level. Deutsche recently upgraded the stock from “hold” to “buy.” Here's the GuruFocus summary of ViacomCBS's financials:
Olympic Steel
Olympic Steel Inc. (ZEUS, Financial) is, yes, a steel company, Nasdaq-traded with headquarters in Cleveland. In business since 1954, Olympic is trading at just 61% of its book value. The price-earnings ratio is 2.48 and Wall Street puts it forward price-earnings ratio at 12.
Earnings per share growth this year is horrible: it’s -245%. Nonetheless, the past five-year earnings growth is 34.29%. Shareholder equity is less than long-term debt. Investors are paid a 0.38% dividend yield. Average daily volume is only about 89,000 shares. GuruFocus' financials summary of Olympic Steel looks like this:
