P/B ratio reflects how many times book value investors are ready to pay for a share. So, if the share price is $10 and the book value of equity is $5, investors are ready to pay two times the book value. Ideally, a P/B value under 1.0 is considered good as it indicates that the stock is potentially undervalued.
A company's stock is considered undervalued when BVPS is higher than a company's market value or current stock price. If the BVPS increases, the stock is perceived as more valuable, and the price should increase.
A good Price-to-Book (PB) ratio typically depends on the industry and the company's financial health. A good PB ratio is typically less than 1, indicating potential undervaluation, but it should be compared with industry peers for context.
A low ratio (less than 1) could indicate that the stock is undervalued (i.e. a bad investment), and a higher ratio (greater than 1) could mean the stock is overvalued (i.e. it has performed well).
Traditionally, any value under 1.0 is considered desirable for value investors, indicating an undervalued stock may have been identified. However, some value investors may often consider stocks with a less stringent P/B value of less than 3.0 as their benchmark.
Ideally, a P/B value under 1.0 is considered good, indicating a potentially undervalued stock. However, value investors often consider stocks with a P/B value under 3.0. The P/B ratio helps to identify low-priced stocks with high growth prospects.
To give you some sense of what the average for the market is, though, many value investors would refer to 20 to 25 as the average P/E ratio range. And again, like golf, the lower the P/E ratio a company has, the better an investment the metric is saying it is.
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The corporations are formed with a face value of INR 10, but most have a face value of INR 100 or INR 1. SEBI, which governs the requirements for listing a public limited company on a stock exchange, has established a minimum face value of INR 1.
What is a Good Price to Book Value Ratio? Value investors often prefer values lower than 1.0, which suggests that an undervalued stock may have been found. The benchmark for certain value investors, however, may frequently be equities with a less strict P/B value of less than 3.0.
Typically, the average P/E ratio is around 20 to 25. Anything below that would be considered a good price-to-earnings ratio, whereas anything above that would be a worse P/E ratio. But it doesn't stop there, as different industries can have different average P/E ratios.
Investing in undervalued stocks can offer substantial benefits, especially for long-term investors. These stocks allow investors to buy shares at a price lower than their intrinsic value, creating potential for significant gains when the market recognises the stock's true worth.
Buffett's Strategy
Warren Buffett, the greatest value investor of this century, now tends to buy stocks with a P/B ratio of around 1.3.
P/B ratio as of January 2025 : 62.9
According to Apple's latest financial reports the company has a price-to-book ratio of 9.15564. The price-to-book ratio is a way to measure how much the stock market thinks a company is worth compared to how much the company says its assets are worth on paper.
High PE can indicate high future growth expectations; low PE may suggest undervaluation. Low PB can suggest undervaluation, high PB may signal overvaluation or growth expectations. Can be influenced by non-operational factors and market sentiment. More stable, based on tangible book value of the company.
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Normal blood pressure is <120/<80 millimeters of mercury. Elevated blood pressure is 120-129/<80 millimeters of mercury. People with blood pressure readings in this category can develop worse blood pressure if they don't do something to improve it.
Lower P/B ratios can indicate that a stock is undervalued, while higher values may indicate that the stock is overvalued or trading at a premium.
Fair Value Estimate for Nvidia
With its 2-star rating, we believe Nvidia's stock is overvalued compared to our long-term fair value estimate of $105 per share, which implies an equity value of roughly $2.5 trillion.
Apple (AAPL) PE Ratio (TTM) : 38.55 (As of Jan. 14, 2025)
P/E 30 Ratio Explained
A P/E of 30 is high by historical stock market standards.
A bad price to book ratio a company can have is anything above 1. If a company has a P/B ratio of above 1, the company's share price is considered overvalued and not a good investment.
NVDA (NVIDIA) PB Ratio : 50.54 (As of Jan. 11, 2025)