The market is quick in spotting hidden gems and according to analysts, this gets reflected in stocks which are trading significantly above their book value.
Book value is an accounting measure which is calculated as total assets minus intangible assets such as patents, goodwill and liabilities.
If any stock is trading above its respective book value could be considered risk, but analysts say that market is attributing higher valuation to the future growth rate of the company.
“When stocks are trading premium to their book value means that market is ascribing significant value to its future growth. When market ascribes a higher value to future growth it encapsulates higher risks as this growth can potentially not get delivered due to a plethora of reasons.
“Though high price to book theoretically indicates higher risks, but in reality, with a cyclical upturn in macroeconomics, these companies may deliver on the growth expectations and such higher multiples may be justified in the longer term,” he said.
Top 30 stocks which continue to trade with massive premium to its book value include names like L&T Technology, HUL, Symphony, Hatsun Agro, Eicher Motors, Bombay Burmah, Blue Dart, Quess Corp, Avenue Supermart, 8K Miles, Colgate etc. among others.
Bombay Burmah has more than doubled investors’ wealth in the last one year, while Symphony rose over 20 percent in the same period, and Hatsun Agro rallied nearly 90 percent.
However, specific investment call on buying more/holding/booking profit needs to be taken in the context of overall SWOT analysis and competitive advantages of any company in question, suggest experts.
Investors should, however, be aware of changes in the risk profile of their investments all the time.
Book value is an accounting measure which is calculated as total assets minus intangible assets such as patents, goodwill and liabilities.
If any stock is trading above its respective book value could be considered risk, but analysts say that market is attributing higher valuation to the future growth rate of the company.
“When stocks are trading premium to their book value means that market is ascribing significant value to its future growth. When market ascribes a higher value to future growth it encapsulates higher risks as this growth can potentially not get delivered due to a plethora of reasons.
“Though high price to book theoretically indicates higher risks, but in reality, with a cyclical upturn in macroeconomics, these companies may deliver on the growth expectations and such higher multiples may be justified in the longer term,” he said.
Top 30 stocks which continue to trade with massive premium to its book value include names like L&T Technology, HUL, Symphony, Hatsun Agro, Eicher Motors, Bombay Burmah, Blue Dart, Quess Corp, Avenue Supermart, 8K Miles, Colgate etc. among others.
Bombay Burmah has more than doubled investors’ wealth in the last one year, while Symphony rose over 20 percent in the same period, and Hatsun Agro rallied nearly 90 percent.
However, specific investment call on buying more/holding/booking profit needs to be taken in the context of overall SWOT analysis and competitive advantages of any company in question, suggest experts.
Investors should, however, be aware of changes in the risk profile of their investments all the time.
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