Recognizing Value Situations - Smoke and Mirrors

Recognizing Value Situations - Smoke and Mirrors

Some apparent asset plays can be a mirage. Find a company selling at a low price to book (P/B), look at assets, and notice that per-share assets are higher than the share price. Is it a good buy?

Depends on the quality and liquidity of the assets on the books.

Large manufacturers and other capital-intensive companies often have overvalued assets on the books. If the assets are largely based on buildings, equipment, and intangibles, watch out; but if they are cash, securities, marketable natural resourcees, land, and the like, there may be an asset-play opportunity.

If there is a large cash hoard exceeding debt, make sure the company is cash flow positive or nearly so. You don't want this cash to disappear as "cash burn."

Also read:
Recognizing Value Situations
Recognizing Value Situations - Growth at a Reasonable Price
Recognizing Value Situations - The Fire Sale
Recognizing Value Situations - The Asset Play
Recognizing Value Situations - Growth Kickers
Recognizing Value Situations - Turning the Ship Around
Recognizing Value Situations - Cyclical Plays
Recognizing Value Situations - Smoke and Mirrors