Ask Colin

If the price to book ratio is less than 1 is there a probability the price could rise, or the reverse?

One reason a price to book ratio is that low is that the company is in trouble. In that case I would want to see a lot of other things in my favour that indicate a turnaround. The most important would be an uptrend on the chart or a breakout upwards from a good accumulation pattern. These things are more likely to be in place if the company has had temporary problems and fallen out of favour. In that case you need to have the value metrics giving you a good margin of safety to take on a risky situation.

In general terms, I would need to see an outstanding opportunity. It is easier and surer to make money from good businesses that are trending upward strongly than trying to be a hero and pick a dog that may have another day in the sun if it is lucky. Remember that the heroes are the ones with the arrows in their backs.

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