XXX traded at a X per cent discount to NTA

[shannonwhitty]

Hi,

Trying to dip my toes in the market and I keep coming across terms that I just don't understand.

I know NTA = Net Tangible Assets but what does this phrase actually mean?

To trade at a X% discount to NTA?

Thanks

 

[skc]

Hi,

Trying to dip my toes in the market and I keep coming across terms that I just don't understand.

I know NTA = Net Tangible Assets but what does this phrase actually mean?

To trade at a X% discount to NTA?

Thanks

NTA is an accounting book entry. It is usually expressed on a per share basis.

To trade at X% discount (or premium) to NTA means the market price of the stock is different to this book value.

A discount indicates that the market believes (either rightly or wrongly) that the assets on the balance sheet are actually worth less than what the number indicates. The converse is true if the share price is higher than the NTA.

NTA is more meaningful for some sectors (e.g. property trusts) than others (e.g. IT companies).

 

[shannonwhitty]

NTA is an accounting book entry. It is usually expressed on a per share basis.

To trade at X% discount (or premium) to NTA means the market price of the stock is different to this book value.

A discount indicates that the market believes (either rightly or wrongly) that the assets on the balance sheet are actually worth less than what the number indicates. The converse is true if the share price is higher than the NTA.

NTA is more meaningful for some sectors (e.g. property trusts) than others (e.g. IT companies).

Thanks for that - In this case, the stock is trading at a 6% discount to NTA - If I understand, this means that the market share price is 6% below the NTA, which means the business is more valuable (book value) than the share market suggests?

 

[McLovin]

Thanks for that - In this case, the stock is trading at a 6% discount to NTA - If I understand, this means that the market share price is 6% below the NTA, which means the business is more valuable (book value) than the share market suggests?

In theory yes. But remember book values are a) historic and b) subject to writedowns. As skc said, it depends on the company.

 

[Knobby22]

Thanks for that - In this case, the stock is trading at a 6% discount to NTA - If I understand, this means that the market share price is 6% below the NTA, which means the business is more valuable (book value) than the share market suggests?

As skc said, it is more relevant to say property trusts.
You are buying a business, not assets generally. The assets are used to generate the profits. It is unlikely that the assets are to be sold (and at the price shown) and the proceeds distributed to shareholders. I don't look at NTA much unless it relates directly to the business. E.g. an oil field or property trust etc.

 

[shannonwhitty]

Thanks for the insights. I am clear now.
I'm sure i'll be back again soon with more questions!
The journey is just beginning!