Price-to-Book Ratio (P/B) is a financial ratio used in ratio analysis to help identify potential undervalue stocks. Generally, value investors uses this to evaluate how undervalued, or overvalued is a stock at it’s current price. A higher number will indicate to be more expensive, and a lower number will indicate the stock to be less expensive. Price-to-Book Ratio (P/B) is also known as, PB Ratio or, Market-to-Book Ratio.
Numbers to be considered in Price-to-Book Ratio are:
- Market Price per Share
- Total Shareholders’ Equity
- Preferred Equity
- Total Outstanding Shares
- Book Value per Share (BVPS)
Price-to-Book Ratio is a relatively good way to determine if the stock is undervalue, or selling at a premium.