Why PBV < 1 may not be cheap

[i4value]

PBV is a common valuation multiple. The distribution of this multiple for the Bursa Malaysia Main Board in Aug 2023 has a median of 0.77. In contrast the median for the PBV for May 2014 was 0.94.

The chart below shows the distribution of the PBV for these 2 periods.  You can see that the 2023 distribution is skewed towards the lower end.



If you have a median of less than 1, a PBV < 1 may not necessarily be cheap. As such I use the PBV as a screening metric, but I used the DCF method to determine the intrinsic value. If you want to know more about how I value companies go to “Do you really want to master value investing?”

[donmihaihai]

PBV is a common valuation multiple. The distribution of this multiple for the Bursa Malaysia Main Board in Aug 2023 has a median of 0.77. In contrast the median for the PBV for May 2014 was 0.94.

The chart below shows the distribution of the PBV for these 2 periods.  You can see that the 2023 distribution is skewed towards the lower end.



If you have a median of less than 1, a PBV < 1 may not necessarily be cheap. As such I use the PBV as a screening metric, but I used the DCF method to determine the intrinsic value. If you want to know more about how I value companies go to “Do you really want to master value investing?”

Just like singapore, malaysia has gotten cheaper in thr last 10 years. About 250 companies trading at 0.5x bv or lesser.  Only need to find a handful out of these. To fish where the fishes are

[i4value]

But be careful. A lower PBV in a difficult economic environment could also mean that the book value of some companies have yet to be written off to reflect the market value

[donmihaihai]

But be careful. A lower PBV in a difficult economic environment could also mean that the book value of some companies have yet to be written off to reflect the market value

Written off to reflect market value is not what accounting is all about. 

You are a stock picker, I am one also. Our job is to pick the right stock. Isn't it?

Base on what I read about what you wrote, lot of malaysia companies are trading at higher margin of safety compared to 10 years ago

So let me borrow BG Mr Market. Mr Market is feeling lousy and offering lousy prices. Mr Market is not to instruct you but serve you.

Let me borrow WB. be greedy when other are fearful.

From myself. Any stock that I picked must be able to sail through both good and bad times. And it is easier to pick after a period of bad times because the strengths of the good companies will shown from their operations and reflected in the numbers.

[i4value]

I think the current situation is a combination of Mr Market over-reacting and some of the assets needing to be written down due to Covid-19 induced economic decline. I think Mr Market has bigger influence. But some of the assets especially those related to real estate are probably overvalued.

[donmihaihai]

I think the current situation is a combination of Mr Market over-reacting and some of the assets needing to be written down due to Covid-19 induced economic decline. I think Mr Market has bigger influence. But some of the assets especially those related to real estate are probably overvalued.

What an injection of confidence. Just some. A large numbers are not. How hard to find a few? Thumb up for msian and anyone picking stocks there.

[weijian]

hi i4value,

In your humble opinion, which sectors do you think are victims of Mr Market's over reaction?

[i4value]

All sectors currently although I think the property is the most acute.

[weijian]

All sectors currently although I think the property is the most acute.

h i4value,

But some of the assets especially those related to real estate are probably overvalued

I quote your post above and should it meant "undervalued" instead?

[i4value]

What I meant is that the assets (such as land and buildings) in the books of some companies are probably higher than the current market values. I interpret this as the assets being "overvalued"