DEFINITION of Asset Play
Asset play is an incorrectly-valued stock that is attractive because its combined asset value is higher than its market capitalization, the total dollar market value of all the company's outstanding shares, calculated by multiplying a company's shares outstanding by the current market price of one share. The term refers to a stock that is believed by investors to be undervalued because the current price does not reflect the current value of the corporation's assets. It's called an asset play because the rationale for purchasing the stock is that the company's assets are being offered to the market relatively cheaply, making it an attractive buy or play. Many investors consider asset plays to be sound investments since they are backed by strong assets.
BREAKING DOWN Asset Play
Often, investors who participate in asset plays purchase these stocks in anticipation of price corrections that will cause the company's market capitalization to increase and, therefore, generate a profit for the investors. Companies that are asset plays may attract attention from firms interested in takeovers because they can be a relatively inexpensive method of acquiring assets.
Asset play is similar to value investing when investors actively seek stocks they believe the market has undervalued. Investors who use this strategy believe the market overreacts to good and bad news, resulting in stock price movements that do not correspond with a company's long-term fundamentals, giving an opportunity to profit when the price is deflated. Despite the different methodologies used by value investors, the underlying logic is attempting to buy something for less than he or she thinks it is currently worth.