Calculating the historic price to book ratio on some of those small cap stocks can be used to further indicate relative value. In order to compare the current P/B values to the historic averages I constructed table 1:
Table 1: Price to Book Ratios for selected small cap aerospace and defense sector companies for the 2000 - 2008 time period
A few observations are clear from the numbers in table 1. First, the current P/B ratios for all three small cap stocks (TATTF, OSI, ARTX) are considerably below their historic averages. Secondly, the P/B ratios for those same stocks are at or extremely close to their all time low P/B ratios over the 2000 - 2008 time period. We can conclude that these small cap stocks appear to be very cheap compared to their historic P/B levels.
Would I recommend buying these stocks with just this analysis? Definitely not.
In order to be confident of a buy, we should have a deep understanding of these businesses and the industries they operate in to be reasonably certain of their true asset values and earnings power. However, the current analysis does offer up 3 potentially very cheap aerospace stocks that can be further researched to determine their true intrinsic business values. A rigorously calculated intrinsic business valuation compared to current market prices will demonstrate whether those companies are truly undervalued or not.