Series 66: Price To Book Value

Price to Book Value

Price to book is a ratio that compares the market value of a stock to its book value. Most companies that have been consistently profitable have a market value higher than book value, meaning the price to book is greater than one. This indicates investor confidence in the company’s future. When book value exceeds market value, showing a price to book that is less than one, investors have no faith in the company’s stated value. They may be correct, or the market price may be artificially low, offering value investors an opportunity to buy at a deflated price.

The price-to-book (P/B) ratio of a stock can also help indicate whether a company’s st