P/B Ratio

Price-to-Book ratio — a stock's market price divided by its book value per share, used to assess whether a company is trading at a premium or discount to its net assets.

Book value represents a company's assets minus its liabilities — what would theoretically remain if the business were liquidated and debts paid. The P/B ratio compares the market's valuation to this accounting value. A P/B below 1 means the market values the company at less than its stated net assets — either a potential bargain or a signal that assets are overstated or the business is expected to destroy value.

P/B is most meaningful for asset-heavy businesses like banks, insurance companies, and industrial firms, where the balance sheet accurately reflects the business's value. It is less useful for asset-light technology or service companies, where the most valuable assets (intellectual property, brand, human capital, software) are largely absent from the balance sheet under GAAP accounting.

Historically, low P/B stocks (value stocks) have outperformed high P/B stocks (growth stocks) over very long periods, a finding associated with the Fama-French three-factor model. However, this "value premium" has been intermittent and was notably absent during the 2010–2020 decade as intangible-asset-rich technology companies dramatically outperformed.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.