What is the price-to-book ratio?
The P/B ratio equals share price ÷ book value per share, where book value is shareholders' equity (assets minus liabilities). A company worth $5 billion on the market with $10 billion of equity has a P/B of 0.5.
What does a P/B under 1 mean?
It means investors value the company below its accounting net worth—often because they doubt the assets are worth their stated value or expect returns below the cost of capital (a low ROE). Fama and French (1992) famously found that "value" stocks with high book-to-market ratios earned higher average returns over time, a pattern known as the value premium.
Limits of P/B
Software and pharma companies get most of their value from intangibles like brands, code and patents that barely show up on the balance sheet, so their P/Bs look sky-high. P/B works best for banks, insurers and industrial firms, and should be read alongside P/E and ROE.
FAQ
- Is a low P/B stock a bargain?
- Not by itself. Check whether ROE is improving and whether management returns capital through dividends or buybacks.
- Why do banks trade near book value?
- Their assets are mostly financial and marked close to market value, so book value is a meaningful anchor.
Sources reviewed: 2026-10-25
References
- Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. Journal of Finance, 47(2), 427–465.