Is book value really an out-of-date measure for stocks?

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The measure was ideally suited to Depression-era industrials for capturing the liquidation value of a company that almost certainly owned machinery that could be auctioned off

The chart below is an updated version of one presented by Goldman Sachs chief strategist David Kostin before the pandemic that I haven’t been able to get out of my mind. U.S. sector valuations seem to have organized themselves using a largely outmoded accounting measure in the form of book value.

It is an issue here that few analysts or investors use book value any more. . Tangible asset-heavy market sectors are all grouped in the chart’s bottom left – low P/BV and low ROE territory. This includes utilities,, unsurprisingly, and also Amazon.com-dominated consumer discretionary. The communications services sector, in the lower third of the trend line, is an interesting case. It includes the low-asset, high-profitability Alphabet Inc. and Meta Platforms Inc. but profitability is dragged down by asset-heavy AT&T Inc. and Verizon Communications Inc.

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