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Tickers in this Article: SHLD, TRV, ALL, CMCSA, COO, LOW, HD
When researching a company, I generally like to look at the multiple of earnings and/or cash flow it trades at. Those metrics can be a great way to compare the organization against other companies and against itself over time. I also like to check out its book value, because companies that trade at a low multiple of book value may have a limited downside. (If you need a quick refresher on this ratio, see Value By The Book and Digging Into Book Value). As with all financial ratios, remember that just because a company is trading at a low multiple doesn't make it a sure winner. Further research is required.

Companies With Low Book Value And Expected Profits
The following companies have a low book value and are expected to post a profit in the current year, according to a screen I ran on These companies could be a good starting point for further research. (For further reading, see 4 Steps To Picking A Stock.)

Company Price/Book Market Cap (millions)
Allstate (NYSE:ALL) .90


Comcast Corp.(Nasdaq:CMCSA) .99
Cooper (NYSE:COO) .89
Sears Holdings (Nasdaq:SHLD) .78
Travelers(NYSE:TRV) .94

As the stock market nose-dived and consumers scaled back, Sears shares plunged as well. Even though it has rebounded off its lows, the shares are still down nearly 37% over the last 52 weeks. Sears bulls would probably argue that now is the time to pounce. I disagree.

Although the low price-to-book ratio is admittedly intriguing, I wonder how the company will compete going forward and how the stock will get out of its funk. The major discounters, in many cases, sell clothes at lower prices. Plus, other outlets sell appliances and tools, for which the company has become known. Lowe's (NYSE:LOW) and Home Depot (NYSE:HD) are two such companies with vast footprints, large followings and low prices.

Kmart Concept Not Working
I am also not very keen on its Kmart concept. These days, its prices are nothing special when compared to those of other big-name discounters and/or deep discounters. This, of course, says nothing about the physical condition of its stores, which could use some updating when compared to its peers.

Earnings Consensus Unimpressive
Those hoping that big profits are just around the corner shouldn't hold their breath. The consensus is that Sears is expected to earn 1 cent per share in the current year and 44 cents per share in the next year. Given that the stock currently trades north of $60, that's not too impressive on a price to (estimated) earnings basis. Lowe's currently trades at about 18.7 times the current year estimate of $1.10. Meanwhile, Home Depot trades at about 19.7 times the current year estimate of $1.31. (For more, see Understanding The P/E Ratio.)

Long story short, I'm not saying that Sears can't mount a comeback. However, at this point nothing leaves me confident that now is the time to buy the stock. It's a great example of why a price-to-book ratio should be considered along with other analyses.

Bottom Line
Companies that trade at a low multiple of book value intrigue me. But a low price-to-book value in and of itself is no guarantee of success. The metric should be used in conjunction with other analyses.

For further reading, see Analyze Investments Quickly With Ratios.

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