Price-to-Book ratio
P/B
What it is
The P/B ratio compares the stock price to the company's book value — what its net assets would be worth if it were liquidated tomorrow. A P/B of 2 means you're paying twice net asset value.
How to read it
A P/B below 1 can signal opportunity (the stock is worth less than its assets) or a problem (the company is in trouble). For banks and asset-heavy industries, P/B is very relevant. For tech or services, it's much less so — their real value comes from brand, human capital, software — things that don't appear on the balance sheet.
Common reference points
- Potentially undervalued< 1
- Moderate valuation1 – 3
- Expensive for asset-heavy industries3 – 5
- Very expensive (or high intangibles)> 5
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
P/B is misleading for companies whose main value is intangible (Apple, Microsoft, Google). Apple has a P/B above 50 — that's not abnormal, its value just doesn't sit on a balance sheet. Always compare to sector.
Other measures — Valuation
Educational content. Polaris is not a registered investment adviser and makes no recommendation.