The price-to-book ratio is a metric that analyzes a company's shares against its balance sheet — to see if the stock is over- or undervalued.The price-to-book ratio measures a stock price against a company's book value — its fundamental worth.
But how do you tell? One method is to look at a company's price-to-book ratio — or P/B ratio for short. It's a quick metric that evaluates the market price of a stock and can be used to compare it to others in a similar space. The P/B ratio may signal whether the per-share price is reasonable, lower than it should be, or if it's pie-in-the-sky high.The price-to-book ratio expresses a company's stock share price in relation to its book value per share .
Now, finally, you can determine the book value per share. That's also simple math: Divide the book value from Step 1 into the number of outstanding shares on a particular date .Divide the share price by the BVPS. Voilà! There's your P/B ratio. Some analysts say a P/B ratio of less than 1 indicates that a stock is undervalued and, everything else being equal, it may be poised for a rise.
That's one reason the P/B ratio is a tool to be used in conjunction with others — "one of many indicators of relative valuation," according to Solomon Tadesse, who heads North American equity quantitative research at Société GénéraleExample of the price-to-book ratio
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