Price to book ratio analysis (PBV ratio or P/B ratio) expresses the relationship between the stock price and the book value of each share. In general, the lower the PBV ratio, the better the value is. However, the value of the ratio varies across industries. A better benchmark is to compare with industry average.
Price to book value ratio measures whether or not a company’s stock price is undervalued. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. A company either is undervalued or in a declining business if the value of 1 or less. Although investors use price to book value ratio to get some idea of how expensive a company’s stock is, it provides very limited information for some industries with hidden assets, which are of great value but are not reflected in the book value.
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