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QuestionsCategory: Financials QuadrantIs the stock more likely to be undervalued if the NAV/unit is higher than the share price?
flyingsaucerman asked 8 years ago

From what I understand, the NAV/unit (net asset value) is the net assets minus the net liabilities of a particular stock. Therefore, is just looking at the NAV/unit alone a good way to shortlist or sieve out ‘undervalued’ stocks? But so far, it seems like almost every share I come across has a higher NAV/unit than its share price, why is that so?

1 Answers
Rusmin Ang answered 8 years ago

Hey flyingsaucerman,    
NAV (or P/B) is a great start in screening out “undervalued companies”, but definitely not the end.    
Most service-based companies tend to have very little tangible assets on their books. For the market to value them below its NAV, it would be extremely rare (unless these companies are lowly graded with terrible business). For instance, a very profitable vehicle inspection business listed in Singapore, VICOM, would usually trade above their NAV. Moreover, VICOM doesn’t need to spend heavily on assets to carry out its operations, as its total assets are low, it would be near impossible for VICOM to trade below its NAV.     
On the other hand, asset-intensive business, i.e. property, shipping, etc. may trade below their NAV when a crisis hits the entire industry and causes them to report losses. Shipping companies are suffering due to poor sentiments right now. And be careful when you use NAV, because not all assets are considered “real” assets. Machineries reported at $100 million on the books may only worth $50 million when company winds down the business.     
By the way, your display picture reminds me of the very first time I ever used a computer (probably ten years ago?). Haha