What are we looking for?
Value investors, such as Benjamin Graham and Warren Buffett, pay close attention to a company’s book value growth, and for good reason: This metric is an excellent way to tell whether a stock may be undervalued. My colleague Rob Belanger and I thought we would look at the book-value growth of some Canadian companies.
To be included in our screen, companies had to have increased their book value by more than 20 per cent over the past 12 months. Book value is the net asset value of a company calculated as the total assets minus intangible assets (goodwill, patents) and liabilities. The S&P/TSX Composite Index has an average book value growth of 10.2 per cent.
The price-to-cash-flow ratio (P/CF) is a good measurement of a company’s value, and a lower number (indicating the company is trading at a low price relative to cash flow) is preferred.
Similarly, the price-earnings ratio is a valuation measure of a company’s share price compared with its per-share earnings and, generally, lower is better.
What did we find?
Looking at how book values change over time can tip off investors to firms that are creating real value for shareholders no matter what is going on in the stock market. While this is only one metric used by value investors, if the book value growth exceeds the share price growth, it may indicate an undervalued company.
Bombardier has increased its book value by more than 320 per cent in the past 12 months while the share price has only increased by 26.7 per cent. The company also has one of the best P/CF on the screen and a very respectable P/E ratio.
The best performing stock, CGI Group, may be overvalued since the share price has increased by 56.8 per cent and the book value has only increased 29.6 per cent. The P/E and the P/CF are one of the worst on our list, and the company pays no dividend.
Some of the better looking companies on our screen include Rogers Communications, Superior Plus, Norbord, and H&R REIT.
Investors would be well advised to contact an investment professional, or to do further research.
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Book value growth at some Canadian companies
|Bombardier Inc. -B||BBD.B-T||8.51||321.51|
|Jean Coutu Grp. -A||PJC.A-T||3.97||169.53|
|Labrador Iron Ore||LIF-T||1.86||97.49|
|First Majestic Silver||FR-T||1.50||42.94|
Source: Bloomberg and Wickham Investment Counsel Inc.
|Bombardier Inc. -B||BBD.B-T||8.51||321.51||4.93||2.08||12.55||26.72|
|Jean Coutu Grp. -A||PJC.A-T||3.97||169.53||17.83||1.61||16.94||20.74|
|Labrador Iron Ore||LIF-T||1.86||97.49||31.40||4.97||16.78||-15.48|
|First Majestic Silver||FR-T||1.50||42.94||10.05||0.00||22.37||-47.05|
|Alimen. Couche-Tard -B||ATD.B-T||11.49||39.78||8.48||0.49||17.62||33.88|
|CGI Group Inc. -A||GIB.A-T||10.41||29.60||17.26||0.00||21.80||56.84|
|Alamos Gold Inc.||AGI-T||1.95||26.20||12.60||1.94||19.61||-18.09|
|Home Capital Grp.||HCG-T||2.36||23.94||6.35||1.29||10.23||21.96|
|Rogers Commun. -B||RCI/B-T||21.78||21.83||5.48||3.84||11.76||-3.20|
|Allied Prop. REIT||AP-U-T||2.05||21.36||21.16||4.23||5.59||-5.12|
- Westshore Terminals Investment Corp$12.94-0.16(-1.22%)
- Bombardier Inc$0.80-0.07(-8.05%)
- Jean Coutu Group PJC Inc$19.87+0.31(+1.58%)
- Bonterra Energy Corp$16.20-0.25(-1.52%)
- Labrador Iron Ore Royalty Corp$9.67-0.12(-1.23%)
- Canexus Corp$1.170.00(0.00%)
- H&R Real Estate Investment Trust$19.35+0.60(+3.20%)
- First Majestic Silver Corp$4.98+0.35(+7.56%)
- Alimentation Couche-Tard Inc$58.01-1.47(-2.47%)
- Altagas Ltd$31.70-0.15(-0.47%)
- Norbord Inc$21.88-1.25(-5.40%)
- CGI Group Inc$57.81-2.59(-4.29%)
- Superior Plus Corp$10.15-0.08(-0.78%)
- Alamos Gold Inc$5.44+0.45(+9.02%)
- First Quantum Minerals Ltd$3.93-0.12(-2.96%)
- Gibson Energy Inc$15.70-0.18(-1.13%)
- Home Capital Group Inc$28.52+0.47(+1.68%)
- Metro Inc$41.09-0.01(-0.02%)
- Rogers Communications Inc$47.95-0.79(-1.62%)
- Allied Properties Real Estate Investment Trust$31.59-0.63(-1.96%)
- Linamar Corp$52.72-0.78(-1.46%)
- Gildan Activewear Inc$33.39-1.03(-2.99%)
- Updated February 5 4:00 PM EST. Delayed by at least 15 minutes.