One of the signs of an interesting stock price for me is a discount (or low multiple) to book value. Book value is (in simple terms) the value of everything the company owns minus anything the company owes.
Currently I'm looking at a REIT (real estate investment trust). Real estate, overall, has taken a beating but this REIT is also in the unpopular hotel industry. The thing is, unpopular or not, the vacancy rates at this specific company are low. The debt is low. The cash flow, quite sexy.
And it is trading at book value. So if the company wound up business today, investors would get some money. What's not to like?
Christopher H. Browne, in The Little Book Of Value Investing, says…
"I examined stocks in the period from 1970 to 1981. I analyzed all 7,000 companies that were in the Compustat database during that period. I looked for companies that had at least $1 million in market capitalization and sold at no more than 140 percent of their book value. I sorted them into groups based on their price-to-book value and computed their six-mnonth, and one-, two-, and three-year performance. I found that all these groupings beat the overall market over the one-, two-, and three-year periods although in many instances they lagged for the first six months."
(Note: my results are also sucky for the first six months or so. This strategy is not for the day trader.)