Screening companies selling on low price-to-earnings (PE) multiples in search of investment opportunities has stood many investors in good stead, however there are other metrics which can be useful to identify cheap stocks.
One of those metrics is the price-to-book ratio (P/B). The PB ratio compares the book value (also known as net equity) per share of a business to its share price. The ratio provides an investor with a representation of the implied cost of purchasing all of a company’s assets less all its liabilities.
While the PE and PB metrics can be used independently, looking for stocks which trade on a combination or a low PE and a low PB compared with their peers can turn up even more appealing investment candidates than just using one metric on its own.
Here are four stocks which look appealing based on both their PE and their PB ratios (data supplied by Morningstar).
Beadell Resources Ltd (ASX: BDR) is a gold miner with operations in Brazil. The company just released its full-year accounts which show a book value of $238 million. With the share price trading at 59 cents Beadell is trading on a PB ratio of 1.9x and a PE based on financial year (FY) 2014 estimated earnings of 3.6x.
Seven Group Holdings Ltd (ASX: SVW) recently made a move on oil & gas explorer Nexus Energy Limited (ASX: NXS). It would appear to be no coincidence that Chairman Kerry Stokes has installed the experienced oil & gas executive Don Voelte as Managing Director. Seven has balance sheet strength and Stokes is not one to waste a good opportunity to maximise value for shareholders from the beaten-up mining and mining services sector. Seven is trading on a PB ratio of 0.96x and a current year PE of 11.2x.
MaxiTRANS Industries Limited (ASX: MXI) is a manufacturer and supplier of trailers and parts to the transport industry. The firm is trading on a PB ratio of 1.85x and a FY 2014 PE of 10.3x.
DEXUS Property Group (ASX: DXS) specialises in owning, managing and developing property assets spanning the office, industrial and retail sectors. The company is currently trading on a PB ratio of 0.96x and a forward PE ratio of 13.8x.
Investors who demand a margin of safety in their purchase price naturally find it harder to identify opportunities as a bull market stampedes on. While the five-year bull market means pickings are slim, opportunities are out there for savvy investors.