What does it mean when a stocks price is less than its book value per share?
Book value is the equity of the company. It is assets – liabilities. Book value per share is the equity value of the company divided by the shares outstanding. It is counter intuitive that price would be less than the “liquidation” value of the company. However, we know that sometimes book value exceeds share prices. When book value exceeds share price the market has priced in liabilities such as long term lease agreements that are significant, the predicted value of litigation such as a class action law suit or economic downturns in the industry that will quickly erode asset value.
