Book value per share = (total equity ÷ number of shares). It theoretically represents what a shareholder would get if the company's assets were liquidated and debts paid. The price-to-book ratio is P/B = price ÷ book value per share.
How to read P/B
- P/B below 1: the stock trades below book value — possibly a value opportunity, or a warning sign.
- High P/B: the market pays a premium for growth expectations or a strong brand.
When is P/B useful?
Most useful for banks and asset-heavy companies (real estate, industrials) where assets are tangible and measurable. Less useful for services and tech firms whose value lies in intangibles.
Beware the value trap
A low-P/B stock isn't always cheap; its assets may be losing value or earnings may be weak. Combine P/B with profitability, dividends and the earnings trend.
Review valuation ratios on the stock pages or via the AI assistant.
Frequently asked questions
Is a stock with P/B below 1 always cheap?
No; it may reflect real problems or declining asset values. Confirm with profitability and the earnings trend first.
Why does P/B matter for banks?
Because banks' assets (loans and securities) are clearly measurable, so P/B is a common way to value bank stocks.
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