### Tell me if you think this screen makes any sense

January 17, 2013
– Comments (9)

Hello Fools!

Tell me if you think this screen idea is a waste of time or not. Or if it even makes sense.

I’m still pretty new to business analysis/investing, and sometimes I just get weird screen ideas. Here’s one I wanted to share.

So first, I’m previously accustomed to “backing out” the cash or debt when considering the prices of stocks, to get a better understanding of what I’d be getting if I bought the whole company.

That habit made me think to myself, “If you can back out the net cash or debt, maybe it would make sense to back out the book value?” This may seem similar to what Bruce Greenwald does when he calculates Earnings Power Value (EPV).

***Now, I understand that book value on a balance sheet is not 100% realistic; inventory usually cannot be resold at carrying cost, plants and equipment may not be worth full carried amount either. Likewise, liabilities come is all sizes and shapes, and are often not, in actuality, worth what the balance sheet says they are.

That said, I think this screen might be a useful for the occasional leads for further in depth research. The value in this crude screen/excel exercise is its speed.

Because, in theory, if you could come up with the real world liquidation value of the book value, you could deduct that from the share price (like you might net cash) to get a better idea of what your actually paying for earnings, right? (I think that's correct)

If two lemonade stands are both selling for the same P/E, wouldn’t you prefer the one with lots of assets and few liabilities, compared to the one with the opposite?

So, I ran a screen for companies with a mktcap over 1B, positive book value per share, positive EPS, and a 5 yr avg return on capital over 12% (To keep quality above average.)

I pasted it all in excel.

Then I subtracted book value per share from the current share price, and divided the resulting amount by EPS. This equals the “bookless PE ratio”. Again the formula is: (Share price - book value per share)/EPS.

Please give me some feedback and opinions.

Thanks for helping me learn!

-john

I’m not going to paste all 350 companies here, but here are some of the notables, and where they turned up sorted by “bookless P/E"

Really cheap

EZPW 1.56x

DV 1.78x

RDS.A 1.8x

VALE 1.9x

TOT 2x

DECK 3.94x

CVX 4.4x

GD 4.9x

DELL 5.2x

DLB 5.4x

INTC 7x

WU 5.9x

XOM 6x

AZN 6.3x

HAL 7x

CSCO 7.2x

Other notables

AAPL 8.5x

WMT 9.9x

MSFT 10.5x

IBM 12.7x

MCD 14.6x

JNJ 17x

PM 17x

HSY 26x

SBUX 26x

MA 27x

Exorbitantly expensive

UA 39x

LULU 39x

NFLX 107x

AMZN 3628x