Investiční slovník
Term of the Month: P/B Ratio (Price-to-Book) — What It Says and What It Doesn't
Key takeaways
- A P/B below 1 can signal undervaluation — but also company problems.
- P/B is most useful in capital-intensive sectors such as banks and insurers.
- For technology companies, P/B is almost meaningless — value resides in intangible assets.
- Always compare P/B within the same industry, never across sectors.
The P/B ratio is one of the oldest tools value investors use — and one of the most frequently misapplied.
What the P/B ratio tells you
P/B (Price-to-Book) compares a share's market price with the book value of equity per share. The formula is simple:
P/B = share price / book value of equity per share
A P/B of 1 means you are paying exactly what the company reports as net assets. P/B of 0.7 means you are buying 70 cents worth of book assets for every reported dollar. P/B of 3 means you are paying three times book value.
How to read it in practice
- P/B below 1: the market values the company below its book value. This can signal undervaluation — or it may flag deep problems (impaired assets, losses, restructuring).
- P/B 1–2: the standard range for many industrial sectors.
- P/B above 3–5: the market is paying a premium for future earnings, brand, or intangible assets that don't appear on the balance sheet.
Where P/B works — and where it doesn't
It works best for companies where tangible assets are the key driver of value: banks, insurers, real estate companies, mining firms. For technology, pharmaceutical, or consumer brand companies, P/B is misleading — their value lies in patents, software, brands, and customer relationships that accounting either understates or ignores entirely.
Sector-relative comparison
Always compare P/B within the same sector. A bank at P/B 0.8 and a software company at P/B 0.8 are entirely different situations. Comparing across sectors is one of the most common mistakes in stock screening.
Want to understand other valuation metrics? Follow the blog or browse the company analyses where we use P/B in context.
FAQ
What P/B is "good"?
It depends on the sector. A P/B below 1 is normal and healthy for banks. For technology companies, a P/B below 1 would be the exception and more likely a warning sign. Always compare within the sector.
How is P/B different from P/E?
P/E compares price to earnings; P/B compares price to book value of assets. P/E tells you how much you are paying for profitability — P/B tells you how much you are paying for the substance of the business.
How do I find the P/B ratio?
On any financial portal (Finviz, Macrotrends, Patria, Kurzy.cz) you will find P/B in the fundamentals section. It can also be calculated easily from the annual report.