Glossary · Valuation · Beginner-friendly
Price-to-book
In plain English
Price-to-book compares the stock’s price to the company’s accounting book value. It’s more useful for banks than for software firms full of intangible assets.
Everyday analogy: Comparing a house’s market price to what’s written on an old appraisal of the bricks and land.
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Why it matters
P/B is a staple for banks and asset-heavy comps. For software, book value can be nearly meaningless.
A bit more detail (optional)
What book value is
Book value is roughly assets minus liabilities on the balance sheet. P/B asks how many dollars the market pays per dollar of that accounting equity.
When it helps
Banks, insurers, and some industrials are often screened on P/B. For asset-light tech, book value can be almost irrelevant versus cash flow and growth.
Simple examples
Bank screen
Two regional banks trade at 0.9× and 1.4× book. The cheaper one may be a bargain - or it may be discounting credit losses the book has not fully shown yet.
Bank discount
A regional bank at 0.8× book may be a bargain on mean reversion - or the market pricing loan losses not yet fully reserved.
Easy mistakes to avoid
- Screening tech names on P/B as if they were banks
- Ignoring credit quality behind a low bank P/B
- Treating book value as cash you can extract tomorrow
Remember: Use P/B where the balance sheet is the business - skip it where intangibles rule.