Book value versus potential value

Maximizing opportunities and minimizing risk by considering two types of value

Book value is essentially the value of a security based on historical figures. Potential value is based off of potential catalysts such as a solid press release, higher revenues, and higher earnings per share. Those who analyze a securities based off of book value typically have a lower risk tolerance. Those who analyze securities based solely off of potential value have drank the Kool-Aid, meaning their investment was made entirely off of hype and a lack of analysis. When considering the value of a security, observing both book value and potential value is important.

Although it is important to take both into account, book value is the best indicator of a security’s future. Investing while only relying on value and ignoring historical figures is essentially investing without knowing a company's overall financial health. Although this can yield very high returns, the odds will not be in your favor.

Many investors give into the hype, buying shares of penny stocks because they have the potential to be the next Apple (AAPL) or Google (GOOG), but nobody wants to have realistic goals. This is where book value comes in. Book value gives a financial snapshot of a company.

Combining this financial analysis with a penny stock that has a lot of potential yields winners. The Bowser Report works to provide securities with healthy historical figures (indicated by the Bowser Rating System) that not only have potential, but are up and coming as well.

A perfect example is Command Security Corporation (MOC). The Bowser Report featured this stock multiple times due to the potential contracts (catalysts) the company could receive. Shortly after its most recent recommendation, the company received two huge contracts that would result in revenues over $250 million, shooting the share price over 50%.

While everyone wants to find the next AAPL or GOOG, not every company will skyrocket. Most of the time, this is because of a company's inability to execute. Book value gives tangible evidence of execution. Potential value is nice consider, but it should only be taken into account when the security’s financial history matches up with the investment objectives.

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The Bowser Report is a monthly financial newsletter that specializes in small stocks trading for $3/share or less. Our goal is to provide the individual investor with relevant information on microcap stocks. Each month, we recommend a new company, provide information on past recommendations and report news surrounding the microcap marketplace.

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Information in this blog post may contain references to past Bowser recommendations. This blog post contains no recommendations, and instead relies on data gathered on past recommendations from sources thought to be reliable.