At the height of the housing market's uncertainty, we looked at the some of the discounts to book value at which several homebuilders were trading. Specifically, below is a table showing the discounts to book value at which many homebuilders traded in June of 2008:
Higher discounts did not appear to translate into higher returns, suggesting that many of the discounts were indeed warranted. Normally, value investors would expect the stocks with the largest discounts to show the largest gains, so what happened here? What is likely missing here is how well these companies were capitalized. Discounts to book value tell you nothing about how indebted a company is relative to its assets.
As a side note, it appears that the stocks with the largest discounts showed the most volatility in their returns (i.e. as you traverse the chart from left to right, returns of both a positive and negative nature are of higher magnitude). It is likely that some of these stocks showed a strong likelihood of going bankrupt, and so the ones that did lost big while the ones that narrowly escaped showed excellent returns as speculative plays.