$CTL (Value Investing)

M

mr_byte31

I was looking on stocks that are trading under their book value in the S&P500.

I found CTL which is moving down since September 2018. Currently it is trading under its book value. P/B= 0.69. I added table below from FINVIZ

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I see this stock as undervalued and maybe it is an option to start accumulating from the bottom(I am just ignoring the fact that it has bad Dept/Eq and Current ratio).

I want to ask about why stocks can go deep under its book value even if the market is going up !

if it is going to go lower, what would be an estimate of the lowest price it can reach.

This company seems has a big capital and still profitable so it doesn't seem now to go for bankruptcy.
 
If you're interested in value investing you should check out IBD. They're looking for positive EPS and EPS growth among other things.
 
stevegee58 said:
If you're interested in value investing you should check out IBD. They're looking for positive EPS and EPS growth among other things.
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IBD doesn't follow value investing.
in my opinion they are following momentum approach. they dont care on P/E , debt , ... etc.
 
stevegee58 said:
Nonetheless the stock you picked has horrible EPS prospects. I guess I really don't like bottom fishing.
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did I say the stock is going up ?!

even if the EPS is horrible, still if the company liquidated everything, every stock holder will have more money than the price of the stock !

This happens due to the stock price is a way lower than the book value.
 
Book value can be fictional. CenturyLink has grown by acquisition, and therefore has a lot of "goodwill" on its balance sheet, which is the result of buying companies above book value. There is no guarantee that they could sell that subsidiary for what they paid for it.

The better measure for liquidation value would be "tangible book value," which is (book value - goodwill and intangible assets.) In CTL's case, tangible book value is NEGATIVE. Of course, there could very well be value in that goodwill, but there is no way to know how much.

The company has a horrible balance sheet, and just cut the dividend by more than 50% to try and re-divert cash flows to pay down debt.

It may end up being a good value here, but it's not a slam dunk story by any means.
 
I agree with you drm7
the company has high intangible assets. i was thinking that has some value since it is a technology company and most of the intangible assets shall be patents, ..

Let's say I agree with you about removing the intangible assets to make a better evaluation.
but what about companies that has very small or none of intangible assets.
as example Honda ($HMC). it has minor intangible assets but still traded a way under its book value !!!
 
HMC could be interesting. Strong brand, profitable, etc. The possible issue with Honda is the trend away from cars to trucks and crossovers.

Low P/B is a well-researched "anomaly," which has beaten the market over a long period of time. However, it has underperformed for the last 10 years, which has caused much frustration from deep value investors.

If you aren't willing to buy ALL of the low P/B stocks, then you have to sort through them and figure out WHY they are trading so low, and then run through different scenarios to see under what conditions that discount will correct itself.

One last cautionary example - I invested in an oil company trading at 0.3(!) times tangible book value. It ended up going bankrupt, because they couldn't service their debt.
 
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