Tag: quantitative value

Book Value to Market Value (BtM) is the ratio of the firm’s Book Value to the Market Price of Equity. Book Value is simply total assets minus intangibles and good will and Market Price is the total common shares outstanding times the market price of the stock.

The problem with the BtM ratio is that it tends to pick stocks that are under attack. However, its an useful measure to make an apple-to-apple comparison between stocks within the same sector.

When we ranked the universe of stocks using BtM, it obviously threw up a lot of stocks that have been hammered down:

SELMCL [stockquote]SELMCL[/stockquote]
MICROTECH [stockquote]MICROTECH[/stockquote]
GAMMONIND [stockquote]GAMMONIND[/stockquote]
UNITEDBNK [stockquote]UNITEDBNK[/stockquote]
UBHOLDINGS [stockquote]UBHOLDINGS[/stockquote]

What’s more interesting is what made the bottom of the list:

DABUR [stockquote]DABUR[/stockquote]
ZYDUSWELL [stockquote]ZYDUSWELL[/stockquote]
BAJAJCORP [stockquote]BAJAJCORP[/stockquote]
TCS [stockquote]TCS[/stockquote]
EMAMILTD [stockquote]EMAMILTD[/stockquote]
HINDUNILVR [stockquote]HINDUNILVR[/stockquote]
GODREJCP [stockquote]GODREJCP[/stockquote]
PAGEIND [stockquote]PAGEIND[/stockquote]
COLPAL [stockquote]COLPAL[/stockquote]
SPARC [stockquote]SPARC[/stockquote]

So basically, the more ‘popular’ the stock, the less of a ‘value’ it is, at least according to BtM. Also, when you work with annual balance sheets later in the year, most of the information tends to be fully priced-in.

Gross Profitability to Total Assets (GPA) is the ratio of the firm’s gross profits (revenues minus cost of goods sold) to its assets. Gross profitability has been shown to have far more power than earnings in predicting returns. Gross profits is the cleanest accounting measure of true economic profitability. The farther down the income statement one goes, the more polluted profitability measures become, and the less related they are to true economic profitability. Investors who are interested in the literature can read The Other Side of Value: The Gross Profitability Premium by Robert Novy-Marx (pdf)

For the companies for which we have 5 years worth of financials available, 20 stocks with the best GPA score are:
RSSOFTWARE [stockquote]RSSOFTWARE[/stockquote]
GEOMETRIC [stockquote]GEOMETRIC[/stockquote]
COLPAL [stockquote]COLPAL[/stockquote]
ZENSARTECH [stockquote]ZENSARTECH[/stockquote]
TATAELXSI [stockquote]TATAELXSI[/stockquote]
NIITTECH [stockquote]NIITTECH[/stockquote]
THINKSOFT [stockquote]THINKSOFT[/stockquote]
INFINITE [stockquote]INFINITE[/stockquote]
ECLERX [stockquote]ECLERX[/stockquote]
ALLSEC [stockquote]ALLSEC[/stockquote]
HINDUNILVR [stockquote]HINDUNILVR[/stockquote]
BRITANNIA [stockquote]BRITANNIA[/stockquote]
INFOTECENT [stockquote]INFOTECENT[/stockquote]
ZYDUSWELL [stockquote]ZYDUSWELL[/stockquote]
PERSISTENT [stockquote]PERSISTENT[/stockquote]
TCS [stockquote]TCS[/stockquote]
TTKPRESTIG [stockquote]TTKPRESTIG[/stockquote]
MASTEK [stockquote]MASTEK[/stockquote]
TECHM [stockquote]TECHM[/stockquote]
PAGEIND [stockquote]PAGEIND[/stockquote]

The bottom 10 are:

SOUTHBANK [stockquote]SOUTHBANK[/stockquote]
CUB [stockquote]CUB[/stockquote]
DCB [stockquote]DCB[/stockquote]
ESL [stockquote]ESL[/stockquote]
SYNDIBANK [stockquote]SYNDIBANK[/stockquote]
YESBANK [stockquote]YESBANK[/stockquote]
UNIONBANK [stockquote]UNIONBANK[/stockquote]
VIJAYABANK [stockquote]VIJAYABANK[/stockquote]
UNITEDBNK [stockquote]UNITEDBNK[/stockquote]
UCOBANK [stockquote]UCOBANK[/stockquote]

The bottom 10 non-financial stocks:

ESL [stockquote]ESL[/stockquote]
IBPOW [stockquote]IBPOW[/stockquote]
SUNTECK [stockquote]SUNTECK[/stockquote]
RPOWER [stockquote]RPOWER[/stockquote]
SREINFRA [stockquote]SREINFRA[/stockquote]
GREENPOWER [stockquote]GREENPOWER[/stockquote]
UNITECH [stockquote]UNITECH[/stockquote]
MANJEERA [stockquote]MANJEERA[/stockquote]
GAMMNINFRA [stockquote]GAMMNINFRA[/stockquote]
MURLIIND [stockquote]MURLIIND[/stockquote]

GPA favors ‘asset light’ companies over infrastructure and capital intensive ones. For example, banks with a retail presence will obviously under-perform software services companies. But its a useful measure to discern between stocks within the same sector.