9 Large Cap Canadian Stocks Trading Below Book Value

Don’t be fooled by this indicator.

There are a handful of large cap TSX 60 constituents that are trading below the book value of their net assets. That means the market value of the company’s stock is theoretically worth less than the liquidation value of the company.

While some investors might look at this as a buy signal, there is more to this than meets the eye. Don’t be fooled: The price-to-book value is largely a useless statistic.

First of all, the price-to-book value for companies with high capital costs (aka asset-intensive) tends to be lower. (As you can see in the list below, several of these 9 companies are in the energy industry.) For this reason, price-to-book values aren’t really comparable across industries. In fact, they’re not really comparable from company to company due to differing accounting practices.

In all cases, what is clear is that book value is meaningless as an indicator of value.

Warren Buffett in Berkshire Hathaway 2000 annual report

Second, a low price-to-book value could be an indication of a sick company. The market may be pricing in a decline in asset prices not yet reflected in a company’s backward-looking financial statements. For example, Brookfield Property Partners is trading at a price-to-book of 0.63. This may be because the market is expecting Brookfield Property Partners’ real estate holdings (i.e. its assets) to significantly decline in value due to a structural shift to work-from-home and online retail. A low price-to-book value could signal poor prospects that are not yet reflected in the company’s financial statements.

Third, in today’s modern economy many companies are built using intangible intellectual capital instead of tangible plant and equipment. This 21st century asset isn’t counted in a company’s financial statements, so modern companies may have under-counted net asset values. For example, Amazon, Microsoft and AMD have price-to-book values of 21.24, 13.20 and 29.06 respectively. While these companies could be expensive, they are also massively more profitable than a company like Brookfield, as judged by ROE.

While some research suggests stocks with low price-to-book value outperform over the long run, personally I prefer not to look at price-to-book as an indication of value.

SymbolCompany NamePrice/BookEPS (TTM)Fwd Div YieldFwd P/EPrice/Sales
CVE.TOCenovus Energy Inc.0.34-1.41-20.080.38
IMO.TOImperial Oil Limited0.5-0.035.52%19.70.42
BPY-UN.TOBrookfield Property Partners L.P.0.63-0.3110.82%2.1
SU.TOSuncor Energy Inc.0.67-3.545.42%27.030.79
MFC.TOManulife Financial Corporation0.761.956.11
CNQ.TOCanadian Natural Resources Limited0.760.038.25%34.671.26
FM.TOFirst Quantum Minerals Ltd.0.86-0.590.09%22.691.79
POW.TOPower Corporation of Canada0.912.696.86%8.280.31
CAR-UN.TOCanadian Apartment Properties REIT0.935.782.94%11.869.46

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