What Is P/B (Price-to-Book) Ratio and What Does Below 1 Mean?
Price relative to book value per share. Common for asset-heavy sectors like banks and property; heavy buybacks shrink book value and distort PB.
P/B, the price-to-book ratio, compares the share price with the company's book value per share — the accounting value of its assets minus its liabilities, divided by shares outstanding. A P/B of 1.0 means the market values the company at exactly its net assets on paper; 0.8 means below book, 3.0 means three times book.
How it is calculated
- Book value per share = (total assets minus total liabilities) divided by shares outstanding. This is also called shareholders' equity per share.
- P/B = share price divided by book value per share.
Book value comes from the balance sheet, so it moves only when a new report is published, while the price moves daily. Because it is an accounting figure, it depends on what the company owns and how it is recorded: a bank's assets are mostly loans and securities that are marked close to market, whereas a software company's most valuable assets — its code, brand and people — barely appear on the balance sheet at all. That is why P/B is a mainstream metric for banks, insurers, property and heavy industry, and nearly meaningless for asset-light businesses.
Rules of thumb
| P/B | What it usually means |
|---|---|
| Below 1 | Price is below accounting net assets; either a bargain or the market doubts the book values |
| 1 to 2 | Common for banks, utilities and mature industrials |
| 2 to 5 | The market credits the company with earning power well above its assets |
| Above 5 | Asset-light or very high ROE; book value is not the anchor |
These are conventions, and the sensible level depends heavily on ROE: a company earning 20% on its equity deserves a higher P/B than one earning 5%. Stock Compass also shows a sector percentile so you can compare within the industry.
What it does not tell you
- Whether the book is real. Goodwill from past acquisitions, ageing inventory and property carried at cost can all overstate or understate what the assets would fetch.
- Anything reliable after heavy buybacks. Repurchases shrink equity; a company that has bought back a lot of stock can show a tiny or even negative book value, sending P/B to absurd levels. The app flags these cases as an ROE anomaly.
- Earning power. A cheap P/B with a low ROE usually stays cheap. Book value is what the company has, not what it can do.
In Stock Compass
P/B appears in the fundamentals row of the stock card beside PE, with its sector percentile in the hover text. In the card verdict, P/B is not scored directly; instead, when the valuation model detects an ROE anomaly (ROE abnormally high, or negative), the verdict adds a caution that P/B and ROE carry limited meaning for this company, and any "cheap" reading from the model is downgraded. P/B also feeds the fair value model: book value per share is multiplied by a justified P/B derived from the company's ROE against an assumed cost of equity and long-run growth, clamped to a sensible band, to produce one of the model's estimates. That method is skipped for financial companies with an ROE anomaly.
In the strategy builder, pb is a rule indicator in the Valuation group with the default condition pb < 1.5; pb < 1 expresses "trading below book". pb_industry_pctile < 30 compares within the sector instead. The guide Turn your logic into buy rules shows how a valuation condition like this is combined with trend filters so that "cheap" is not the only thing a rule checks.
FAQ
Is P/B below 1 a bargain?
Sometimes, and sometimes it is the market saying the assets are worth less than the accounts claim — bad loans, obsolete inventory, overvalued goodwill. A low P/B combined with a decent, stable ROE is a much stronger observation than a low P/B alone.
Why does P/B look wrong for companies like large US tech or consumer brands?
Their main assets are intangible and mostly absent from the balance sheet, and years of buybacks have shrunk equity further. P/B can read 30 or 50 without meaning expensive. Use P/E or cash-flow measures for those.
How does P/B relate to ROE?
ROE is profit divided by the same book equity that P/B is built on. Together they say what you pay for the assets and how much those assets earn; a fair P/B rises with ROE, which is exactly how the app's fair-value model uses them.
How often does book value update?
Only when the company publishes a balance sheet, typically quarterly or half-yearly depending on the market. Between reports, P/B changes purely because the price changes.
Definition only — not investment advice.