Over the past couple of months, the Bursa bank stocks seems to up-trending. Refer to Chart 1
Chart 1: Price trends
But when I compared the LTM PBV or PE for the same period (Refer to Charts 2 and 3) I do not so see the uptrend pattern. One way to interpret this is that the asset value and earnings have also increased in tandem with the stock price.
Chart 2: Bank PBV
Chart 3: Bank PE
I happen to have confidence in Bank Negara oversight of our banks and believe that the Book Value represents a reasonable value. So for banks to be trading below its Book Value looks like undervaluation to me.
If you look at Chart 2, you can see that there are 4 banks with PBV < 1. Now if prices are moving up and we still have a “steady” PBV, this looks like and investment opportunity.
I am a value investor and I am merely suggesting that these are the companies that I would focus my detailed analysis on. I am confident that I can find value investing opportunities here and weed out the value traps.
I am of course merely demonstrating one way to screen for value companies. If you want to know more about screening for value traps go An Effective Way to Screen for Value Traps