Reviewed by Gotrade Internal Analyst
When you research stocks, you will often see Price to Book, P/B or P/B ratio listed next to metrics like P/E and dividend yield.
Price to book tells you how much investors are paying for each dollar of a company’s net assets on the balance sheet.
It is widely used in value investing, especially for banks, insurers and other asset heavy businesses.
Price To Book Ratio Meaning
Price to Book (P/B) compares a company’s market value to its book value.
- Price = market price per share
- Book value = company’s net assets (assets minus liabilities)
- P/B ratio = price per share divided by book value per share
In simple terms:
P/B shows whether the market values a company above, around or below the value of its net assets.
- P/B above 1 → market values the business above book value
- P/B around 1 → market values it close to book value
- P/B below 1 → market values it below stated net assets
P/B Formula
The standard formula looks like this:
P/B Ratio = Share price ÷ Book value per share
where
Book value per share = (Total assets − Total liabilities) ÷ Shares outstanding
Simple example
- Total assets: 50 billion dollars
- Total liabilities: 30 billion dollars
- Net assets (equity): 20 billion dollars
- Shares outstanding: 1 billion
- Book value per share: 20 dollars
- Share price: 30 dollars
P/B = 30 ÷ 20 = 1.5
That means investors are paying 1.5 times book value for this company.
What Does A High Or Low P/B Ratio Mean?
P/B is not good or bad on its own. You need to interpret it in context.
Low P/B Ratio
A P/B below 1 is often seen as a potential value stock signal. It can mean:
- The market is pessimistic about future profits
- Assets may be undervalued
- Or there are serious problems the balance sheet does not show
Value investors sometimes look for P/B below 1 or below sector peers, then check whether the business is simply out of favor or genuinely broken.
High P/B Ratio
A high P/B (for example 3, 4 or higher) can mean:
- The company earns high returns on its assets (strong profitability)
- The market expects strong future growth
- Or that the stock is simply overvalued
Quality tech or brand driven companies often trade at high P/B because their real value sits in intangibles like software, data or brand, which are not fully captured on the balance sheet.
How Retail Investors Can Use P/B
You do not need to be a professional analyst to make P/B helpful.
1. Compare within the same sector
P/B is most useful when you compare peers:
- Bank A P/B 0.8
- Bank B P/B 1.2
- Bank C P/B 1.6
If Bank A has similar or better profitability than the others, a 0.8 P/B might indicate potential undervaluation. If its returns and asset quality are clearly worse, the discount may be justified.
2. Combine P/B with ROE
A powerful combo is P/B plus Return on Equity (ROE):
- High ROE and low to moderate P/B can be attractive
- Low ROE and high P/B is often a warning sign
You want to know: how efficiently is management using the equity that P/B is measuring
3. Track P/B versus its own history
Look at how a company’s P/B has moved over time:
- Is today’s P/B high or low relative to its 5 year range
- Does the change match shifts in growth, ROE or risk
This can help you judge whether the market has become too optimistic or too pessimistic.
Limitations Of P/B Ratio
P/B is simple, but it has clear limits.
1. Book value can be outdated
Assets and liabilities are recorded at historical cost. For some businesses, this can be very different from current market value.
2. Intangible assets are underrepresented
Brands, software, patents, customer relationships and human capital are often worth more than factories. These are not fully captured in book value, especially for modern tech driven companies.
3. Accounting differences
Different accounting choices across countries or sectors can distort book value, making cross sector comparisons unreliable.
4. Value traps
A low P/B can point to value opportunities or value traps. If profits keep falling, loans go bad or management destroys capital, a low P/B may stay low for a long time.
This is why P/B should be just one input, not your only filter.
P/B Ratio And Global Stock Investing
When you invest in US and global stocks, P/B can help you:
- Compare banks and financials across markets
- Screen for potentially undervalued asset heavy businesses
- Judge whether you are paying a fair multiple of book value
Modern investing apps that give you access to US markets, like Gotrade, usually display P/B alongside P/E, dividend yield and other metrics.
That lets you practice checking both earnings power and balance sheet metrics before you buy.
Conclusion
Price to Book (P/B ratio) compares what the market is willing to pay with the net assets on a company’s balance sheet. It is especially useful for financials and asset heavy businesses and is a core tool in value investing.
On its own, a low P/B does not guarantee a bargain and a high P/B does not always mean expensive. The real insight comes when you combine P/B with profitability measures, sector context and a basic view of the business model.
If you want to explore P/B in real markets, you can use Gotrade to browse US stocks and ETFs, see their key ratios and start building a diversified portfolio with small, manageable amounts while you learn.
FAQ
- Is a P/B ratio below 1 always good?
No. It can signal undervaluation, but it can also mean the market expects weak profits or serious risks. - What is a good P/B ratio?
There is no universal “good” P/B. It depends on the sector, profitability and growth. - Is P/B useful for tech stocks?
Less so. For asset light tech or software companies, P/E, cash flow and growth metrics are usually more informative than P/B.
Reference:
- Investopedia, Price-to-Book (P/B) Ratio, 2026.
Disclaimer
Gotrade is the trading name of Gotrade Securities Inc., which is registered with and supervised by the Labuan Financial Services Authority (LFSA). This content is for educational purposes only and does not constitute financial advice. Always do your own research (DYOR) before investing.
