A measure of valueing a loss making company is often using P/BV method. Say a company has a P/BV of 0.5. It's a quality company which you truly believe will continue existing long into the future.
Now that seems cheap enough, but this company keeps making losses and book value decreases for 3 more quarters. Book value per share falls from $10 to $7 in those quarters before staging a rebound. Share price at 0.5X BV falls from $5 when it initially looked attractive to $3.50 before the rebound begin.
Now if you bought in at $5 you would've been down 30% before the company started rebounding. There can be even more severe cases of book value depleting in a few quarters.
Question is simple...when do you get in? Do you wait till the sector outlook bottoms out? Like O&G companies may have been cheap in Jan 2016 but the sector hadn't bottomed out, by December 2016 you could make a case it had bottomed out. Do you look at macros like these to time your entry into quality companies suffering from continuous quarters of losses?
Submitted May 06, 2017 at 02:13PM by learner1314 http://ift.tt/2pRDQo8
