Value investing puts great emphasis on the book value of a stock, which is said to represent what the shares are worth. But how do you determine whether a book value is comparable to your stock value? In one case I was able to understand the issue: look at the prospectus for GLBS (current stats, P/B 0.16) and observe the voting power of Series B preferred shares. But I don't understand at all why TNXP (current stats) would have an even lower P/B than that. (0.11 according to Yahoo Finance; 0.07 according to an Etrade statistic) I don't understand why this isn't considered "free money", but more importantly...

How do you go about researching whether the P/B ratio is low for some understandable reason?

Note: a similar question addresses various reasons why P/B value can be somewhat less than 1, but doesn't address how to research an exceptionally low value.

  • Such questions unfortunately are too broad - it could be that predicted losses would wipe out the balance sheet, the assets have been hammered since the last financial statement, that the market value of their assets is much less than the book value, or that there are some other instruments (e.g. preferred shares) that have a higher claim to assets than the common shares.
    – D Stanley
    Oct 6, 2022 at 14:21
  • But there is no "free money" - if you want to take a risk that you've found a hidden gem, that's fine, but don't bet the farm on it.
    – D Stanley
    Oct 6, 2022 at 14:22
  • @DStanley - is there a way to figure out whether preferred shares can wipe out the value of common shares that is less reading comprehension intensive than going over the SEC filings? In this example, TNXP does have preferred shares, but compared to the other low book value, I didn't see a reason to think they had a 49.9% voting power, and I don't think the company had a similar level of dilution either. (Though I would also appreciate an answer explaining how better to assess dilution over time) Oct 6, 2022 at 14:40
  • @MikeSerfas Preferred shareholders must get paid before common shareholders [both in dividends and in liquidation] - that is why they are called 'preferred'. However, they typically have minimal participation in the future growth of the company, which is often attributable just to the common shareholders (the preferred shareholders, like debtholders, often know exactly what their payout will be, as long as the company doesn't go bankrupt. If the company grows, that payout for P/S shareholders typically does not change, barring special conversion provisions etc.). See my answer for more. Oct 6, 2022 at 14:46

1 Answer 1


It seems you are looking at the price of 'preferred' shares, not 'common' shares for that company. Different share classes have different rights attached, and can vary widely in value.

'Preferred shares' are in some respects closer to debt than equity. They are typically offered for a set $ value, they typically have the right to a strict dividend amount [which is typically known in advance almost like a known interest rate on an offered bond], and they must get paid out before common shareholders [this applies to dividends, and also to payouts if the company liquidates, meaning first debtholders get paid, then preferred shareholders, then common shareholders if any value is left].

So preferred shares are typically considered lower risk than common shares, and don't really participate in the full "future earnings" potential of a company because their payouts are known in advance.

'Common shares' are probably what you think of most when you think of 'shares'. They represent the ownership of the full value of the company, and all profits of the company are attributable to those owners, after factoring that debtholders (and preferred shareholders) must first get paid out.

So the Price/Book ratio is not terribly relevant for preferred share value in most cases. A company with $10B in debt, $21B in Assets, and $500M of preferred shares, would show this ratio for the preferred shares as 500,000,000 / 11,000,000,000. The company could grow 500x further than that, and in most cases, the preferred shares would still just be worth close to the $500M they were originally offered for. Their value can go up and down, but more like a bond, where value is based mostly on the chance of bankruptcy against a known set dividend payment.

2 notes:

  • I haven't looked in-depth at this company's balance sheet, so don't know if there are other issues at play.
  • This situation is not uncommon; preferred shares are just another form of financing like any other, and are also often used as part of the method of allowing founders to retain some voting rights while still releasing majority of the value to the public in an IPO.
  • What I read for GLBS was different from this; to quote from the link, *"While our common shares have one vote per share, each of our 10,300 Series B preferred shares presently outstanding has 25,000 votes per share ... The superior voting rights of our Series B preferred shares limit our common shareholders’ ability to influence corporate matters. The interests of the holder of the Series B preferred shares may conflict with the interests of our common shareholders, and as a result, we may take actions that our common shareholders do not view as beneficial." This is a regular NASDAQ stock. Oct 6, 2022 at 22:28
  • @MikeSerfas How does that contradict anything that I've written above? I even mention explicitly that preferred shares are often used for voting control, frequently at the moment of IPO to leave at least some voting power with the original founders. I will be blunt: It appears that you are in well over your head. It is a very good thing that you are trying to learn, but be very, very cautious of trying to make direct stock investing choices based on financial analysis until you are much further along in your development. Oct 7, 2022 at 13:24
  • "Leaving the founders some control" seems like a bit of an understatement. Yahoo Finance's graph shows GLBS going from 176000 in 2008 to 1.54 recently. As far as I can tell the voting rights allowed them to make 100-to-1 and 10-to-1 reverse splits and sell new stock... with a nice book value ... repeatedly. I have an urge to "develop" by finding out if there's a quick or reliable way to find out when the book value of a stock is actually somebody else's money. Oct 7, 2022 at 16:28
  • @MikeSerfas A few counterpoints 1) stock splits do nothing to create/destroy value. A pie cut into 10 pieces weighs the same as a pie cut into 100. 2) Selling new stock puts new money into the company, as a method of financing operations, not money into the hands of old shareholders. 3) Again - preferred shareholders do not get value increases from new profits; those go to common shareholders. 4) Law prohibits majority-voting shareholders from usurping value from other shareholders [not impossible in theory, but probably not common, and not legal if it happens]. Oct 7, 2022 at 19:18

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