Price-to-Book Ratio (P/B)

The price-to-book ratio compares a company’s stock price to its book value per share. Book value is the company’s total assets minus its total liabilities, divided by the number of shares outstanding. A P/B of 1.0 means the stock is priced at exactly what the company’s net assets are worth on paper.

A P/B below 1.0 means the stock is trading for less than the company’s stated net asset value. In theory, you could buy all the shares, sell the assets, pay off the liabilities, and have money left over. In practice, it usually means the market thinks the assets are worth less than the balance sheet says (real estate that has depreciated, inventory that will not sell, etc.) or that the company is in trouble.

P/B works best for asset-heavy industries like banking, insurance, and manufacturing. It is less meaningful for tech companies and service businesses where the value is in intellectual property, brand, and talent — none of which appear on the balance sheet.

Value investors use P/B as a screening metric, often looking for stocks with P/B under 1.5 or under 1.0. A P/B below 1.5 is a common threshold for identifying potentially undervalued stocks.

For bank stocks specifically, P/B is one of the primary valuation tools because bank assets (loans, securities) have relatively clear market values. A bank trading below book value is often flagged as either a bargain or a sign that the market expects loan losses.