What is an Asset Play in Stock Investing?

By Stock Research Pro • October 27th, 2009

An Asset Play refers to a stock that represents an attractive investment opportunity because its total asset value exceeds its current market capitalization. An asset play presents a particularly good opportunity for value-oriented investors who often look to purchase these stocks with the expectation that the market will correct itself and leave them with a capital gain. To validate the opportunity, the company’s assets and inventories are reviewed and appraised; that total value is then measured against the current market capitalization.

What are Company Assets?

A company’s assets are anything the company owns that contribute to the value of the firm. Typically, assets are thought of as those things that generate cash flow, but the definition also includes cash, inventory, and “fixed assets” (including property and equipment). Intangible assets, which can also increase the value of a firm, might include such things as patents and copyrights.

What is Market Capitalization?

A company’s market capitalization, more commonly known as “market cap” represents the total market value of the company’s outstanding shares. The calculation for market cap is simply the current stock price multiplied by the number of shares outstanding. When evaluating a stock for purchase, many investors consider the company’s market cap as it can have a significant bearing on both the potential risk and return of the investment.

Using Price-to-Book to Find Asset Plays

The price-to-book ratio compares a company’s stock price to its book value per share by simply dividing the current stock price by the company’s book value per share. If the result is less than 1.0, then the company’s assets are worth more than the current stock price, indicating a potential asset play.

The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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