Back to Home
P/B
(Price-to-Book Ratio)
P/B compares a stock's market value to its book value (assets - liabilities), showing whether shares are over/undervalued relative to the company's balance sheet. Calculated as Market Cap / Shareholders' Equity, it's a key metric for value investors.
A P/B under 1 suggests potential undervaluation (buying $1 of assets for <$1), while tech stocks often trade at 10+ P/B due to intangible assets. The S&P500 average P/B is 4.5, varying by sector (banks 1.2, pharma 4.8). Limitations include accounting rule differences and irrelevance for service firms with few hard assets. Benjamin Graham's "net-net" strategy buys stocks below 2/3 book value, historically generating 15% annual returns.
A P/B under 1 suggests potential undervaluation (buying $1 of assets for <$1), while tech stocks often trade at 10+ P/B due to intangible assets. The S&P500 average P/B is 4.5, varying by sector (banks 1.2, pharma 4.8). Limitations include accounting rule differences and irrelevance for service firms with few hard assets. Benjamin Graham's "net-net" strategy buys stocks below 2/3 book value, historically generating 15% annual returns.