P/B
Compares stock price to accounting book value. Below 1.0 can mean undervalued or in trouble. Most useful for banks and asset-heavy industries.
Why it matters
Measures how much the market values the company relative to its accounting net worth. Especially useful for financials (banks, insurance) where book value reflects the underlying asset base. Note: most bank assets (loans, HTM securities) are at amortized cost, not marked to market.
How to read it
Below 1.0 means the stock trades below its accounting value — potentially undervalued, or the market believes the assets are impaired. Above 3.0 is typical for companies with strong intangible assets (brands, IP, network effects). Meaningless for asset-light tech companies. The value premium: stocks in the lowest P/B quintile have historically outperformed by 3-5% per year, though this factor has weakened since 2010 (Fama & French HML factor).
Lessons that use this term
Related terms
Ambiguity Aversion · Anchored Assumption · Asset Beta · Bank ROE Spread · Banker Pitch Deck · Beta
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