Is low P/BV better better then high price to book value? Is a firm with low P/E better then the one with high price to earnings? I have a vague idea of these, will someone please clarify thanks guys
All else equal, low multiples are better, as they could imply that the stock is undervalued. Different industry have different multiples though, and low P/E and P/BV ratios may be low for a reason. For example, if a company has low P/E compared to the industry, and this is corrected, the price will rise until the P/E is comparable. If a competitor has a high P/E instead, and that corrects to match the industry, then the price will fall. The reasoning is the same for both P/E and P/BV
In regards to P/E and B/V, which stocks have historically outperformed? Low P/E and High B/V stocks?
Based on “studies” in the CFAI curriculum, both P/E and P/BV are correlated with the long-term growth of stocks. So if a lower-than-expected P/E or P/BV is estimated, then the stock should be undervalued (and vice versa)…
According to the books, studies on all of the multipliers show that lower ones are more likely to lead to higher long term growth.
High P/BV means that the equity owner has little rights to the assets after creditors. BV is the asset values that equity holders can monetize on. If P/E is high, return is low…EPS/P = return. That is my take on it.
My take is if the multiplier is low, you can buy more earnings or BV for one dollar of price than if the multiplier is high.
sbmarti2 Wrote: ------------------------------------------------------- > According to the books, studies on all of the > multipliers show that lower ones are more likely > to lead to higher long term growth. True, but people may say that the low PE, PB stocks risk is not accurately stated. while they may be the exception to the semi-strong form, peeps say the risk isnt accurate. EMH
I think of Bear Sterns when i think of BV. When JP offered them $2 a share, the analysts on the street said that the building they owned was valued at least $8 share, p
I thought high P/BV and low P/E outperform the other ones if they are operationally efficient i.e., net profit margin >0. But i was not sure about it, and we dont have a consensus on this forum either, different answers. well… thanks guys for you inputs.
A high P/BV is sort of like a high P/E: the *price* is still high. So lower is generally better ceteris paribus…