If there's one thing investors have (hopefully) learned in the past two-plus years, it is that

lower prices don't necessarily mean bargains. To the simple price of stocks and (relatively) low price-to-earnings ratios, you can add price-to-book value to the list of metrics that are down from the peak, but shouldn't automatically be assumed to be attractive.

Book value is the net sum of a company's assets minus its liabilities, or the value at which assets are carried on corporations' balance sheets. A simpler way to look at is this: If you sold off a company's assets and paid off its liabilities, the amount left over would be its book value.

Whatever definition you prefer, the fact is that more than 30 companies in the

S&P 500

were trading with price-to-book value (P/B) of less than 1 as of Wednesday. (A sample of these appear in the tables below.) A lot of these companies appear to be bargains, but aren't, because their book values still carry puffed-up, boom-era valuations.

Historically, a low price-to-book was viewed as a sign of an undervalued stock. When a company is trading at a price-to-book under 1, the market is saying its stock is worth less than the value of the firm's assets minus its liabilities.

"But some

companies trade below book value for a good reason," said Diane Garnick, the always thought-provoking global investment strategist at State Street Global Advisors. "Cheap does not

necessarily equal a good stock."

Because of the tremendous M&A activity in the late 1990s, many companies' book values are "hugely overstated," she said. "Intangible assets and even tangible assets are not worth as much as in the late 1990s. Assets are overstated and liabilities are hugely understated."

When two companies merge, the book value of the acquired company

at the time of the deal

is the value assigned to the acquiring company's balance sheet. That valuation stays on the acquirer's books, minus a systematic depreciation schedule that is often grossly out of line with reality.

So many assets acquired at "boom-time" valuations (and often with boom-time currency, i.e. stocks) in the late 1990s are now worth a whole lot less, if anything.

Obviously, a lot of those assets -- namely intangibles such as intellectual property, patents and boom-era concepts such as "mind share" and "eyeballs" -- are no longer as highly valued by the market. So a lot of companies are now sitting with inflated book values. That, in turn, is pushing down P/B ratios, because book value is the denominator. Simultaneously, the share prices have fallen (

and can't get up

) because investors realize companies' assets remain wildly overvalued.

"A lot of times,

a low P/B is not so much an indication the stock is cheap, but that the market recognizes assets are no longer worth what they were acquired for and are expecting a write-off," said Robert Willens, accounting and tax analyst at Lehman Brothers. "If it's obvious that the assets are no longer worth what they originally cost, then it's likely a writedown or write-off will be made in the near future."

The Good, the Bad, the Goodwill

AOL Time Warner

(AOL)

is perhaps the best example of this phenomena. In January 2000, AOL acquired Time Warner for $174 billion in stock. But in March 2002, AOL took a

$54 billion write-off to reflect a reduction in the value of goodwill, which is the amount the purchase price for a deal exceeds the book value of the acquired company's net assets at that time.

Basically, AOL's write-off was an admission that it overpaid for Time Warner. But the market is saying the Internet/media conglomerate still has some 'fessing up to do.

"AOL being below book reflects investors saying 'those investments are impaired,'" said Gail Bardin, who manages a

(HWLIX) - Get Hotchkis and Wiley Large Cap Val I Report

Large Cap Value fund for Hotchkis & Wiley Capital Management in Los Angeles, which has no position in AOL. "Once

the assets are written off or down, you'll get a little clearer

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idea on the valuation of the company. Right now, investors are using their own numbers for AOL. There's a question how much its intangible assets are worth."

AOL has intangible assets of $125 billion on its balance sheet, according to its March 31 10-K filing. But are those assets really worth $125 billion in today's world? Such concerns, and AOL's onerous debt burden -- the bulk of its $62.4 billion in liabilities -- explain why savvy investors remain wary of the shares, despite an 80% drop from its peak.

When Financial Accounting Standards Board Rule 142 went into effect at the beginning of 2002, the expectation was there'd be a torrent of write-offs. FASB 142 declared companies could no longer write down the value of goodwill over time, but wouldn't have to take a charge against earnings for writing it off in one swoop.

AOL certainly isn't the only company to have written off billions in goodwill --

Tyco International

(TYC)

,

JDS Uniphase

(JDSU)

,

Nortel

(NT)

and

General Electric

(GE) - Get General Electric Company (GE) Report

being other notables.

But "the writedowns haven't been systematically happening," said State Street's Ganick. In many cases, CEOs who made the deals in question remain at the helm and "don't want to admit

they overpaid."

Among the

prime candidates for goodwill write-offs, firms such as Tyco,

AT&T

(T) - Get AT&T Inc. Report

and

Georgia-Pacific

(GP)

have chosen an alternative route: spinoffs.

The deals and planned offerings for Tyco's CIT Financial and Georgia Pacific's consumer products division "make it easier for investors to recognize standalone business' value," Garnick said.

But to some, "unlocking shareholder value" is a euphemism for "cleaning up the mess" made during the halcyon days of the late 1990s. Understanding this, investors must be aware that a low price-to-book might be a sign of an attractive stock, but also could be an indicator of company whose balance sheet is anything but well-balanced.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

Aaron L. Task.