Everyone likes a bargain.
As Charlie Munger once said, "No matter how wonderful a business is, it's not worth an infinite price. We have to have a price that makes sense and gives a margin of safety considering the normal vicissitudes of life."
In keeping with Charlie's thoughts, one of my favourite stock picking metrics is the 'Price to Book Value'.
The price to book value is the comparison between the current share price and the current book value per share, also called equity per share.
The book value per share or equity per share, is the amount of equity on the balance sheet divided by the number of common shares.
Why is book value so important?
Book value is one way to measure the value of a company. Put simply, you add up the carrying value of the company's assets, and subtract its liabilities, what you're left with is the book value.
Compare that to the value the stock market is giving to the business (the share price), and you may have a great value investing opportunity.
As a value investor, for me it's a great starting point.
Where to find this information?
In terms of finding this information, let's use Telstra Corporation Ltd (ASX: TLS) as an example.
To find the current share price for Telstra, you can go to any number of sites, like Google Finance. Here is Telstra's current share price at $5.66 on Google Finance:
To calculate the book value per share.
Go to Telstra's 2015 Annual Report and you'll see the total number of listed shares is 12,225 million:
Then go to Telstra's Statement of Financial Position or Balance Sheet and find the total equity available to Telstra entity shareholders, which is $14,103 million:
Now, all you have to do is divide the total equity available to Telstra entity shareholders by the total number of shares ($14,103 million/12,225 million) and you get $1.15 of book value or equity per share.
Compare the $1.15 of book value to the share price of $5.66 and you have a price to book value ratio of 4.92. The closer the book value per share is to the share price, the better the value.
Easy!
10 value stocks selling at a discount right now
Here is my list of 10 stocks currently selling very close to their book value. I've also added some additional criteria to provide some protection against high debt companies, and focused on companies that have recently provided good returns on equity, positive earnings per share growth and, paid a dividend:
| Company name | Symbol | Price to book | Return on equity (5 yr avg) (%) | Total debt/equity (Recent yr) (%) | Div yield (%) | 5y EPS growth rate | Last price | Book value/share |
| TFS Corporation Limited | (ASX:TFC) | 1.07 | 16.62 | 34.14 | 1.95 | 5.75 | 1.51 | 1.44 |
| HFA Holdings Limited | (ASX:HFA) | 1.07 | 24.23 | 3.33 | 5.84 | 87.71 | 2.39 | 2.21 |
| Finbar Group Limited | (ASX:FRI) | 1.16 | 17.23 | 33.88 | 8.47 | 4.25 | 1.17 | 1.02 |
| Woodside Petroleum Limited | (ASX:WPL) | 1.2 | 15.39 | 16.42 | 8.49 | 7.27 | 31.62 | 26.78 |
| BWP Trust | (ASX:BWP) | 1.41 | 11.45 | 33.67 | 3.51 | 8.55 | 3.07 | 2.24 |
| Tassal Group Limited | (ASX:TGR) | 1.48 | 11.89 | 21.17 | 3.72 | 11.17 | 3.72 | 2.54 |
| Insurance Australia Group Ltd | (ASX:IAG) | 1.81 | 14.76 | 25.85 | 5.72 | 47.37 | 5.05 | 2.8 |
| Monadelphous Group Limited | (ASX:MND) | 1.9 | 46.94 | 6.31 | 17.98 | 3.6 | 7.22 | 3.95 |
| Trade Me Group Ltd | (ASX:TME) | 2.02 | 12.12 | 24.01 | 4.63 | 4.69 | 3.1 | 1.57 |
| Austbrokers Holdings Limited | (ASX:AUB) | 2.14 | 17.15 | 25.11 | 4.39 | 10.21 | 8.64 | 4.23 |
