PB ratio > 1 usually implies that the market price is trading at the company's book value premium. It could mean that the stock is overvalued and has high future growth. Conversely, a low PB ratio indicates that the market has relatively low expectations for the company's prospects.
Typically, value investors consider a Profit-to-book value ratio below 1 to be an indicator of an Undervalued Stock. However, a P/B ratio of 3 is widely regarded as a standard for undervalued stocks.
The price-to-book ratio is used by value investors to identify potential investments. P/B ratios under 1.0 are typically considered solid investments by value investors. A good P/B ratio is relative to a business and its industry.
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.
In general, a P/B ratio below one indicates that a company is undervalued, while a ratio above one indicates that the company's stock is trading at a premium. However, what this tells you about a company varies between industries. Depending on the sector a company is in, lower or higher P/B ratios may be the norm.
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.
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.
In simple terms, a good P/E ratio is lower than the average P/E ratio, which is between 20–25. When looking at the P/E ratio alone, the lower it is, the better.
Price-earnings ratio (P/E)
A high P/E ratio could mean the stocks are overvalued. Therefore, it could be useful to compare competitor companies' P/E ratios to find out if the stocks you're looking to trade are overvalued. P/E ratio is calculated by dividing the market value per share by the earnings per share (EPS).
Generally, a good debt-to-equity ratio for a business is around 1 to 1.5. However, the optimal debt-to-equity ratio can vary significantly depending on the business's stage of growth and industry sector. For example, newer and expanding companies often use debt to fuel their growth.
A negative book value means that a company has more total liabilities than assets. It owes more in numerical terms, but it's not automatically bad news for investors.
A healthy blood pressure reading should be lower than 120/80 mmHg. Normal blood pressure is less than 120 mmHg systolic and 80 mmHg diastolic (see blood pressure chart below), and may vary from 90/60mmHg to 120/80mmHg in a healthy young woman.
Google (GOOG) PB Ratio : 7.63 (As of Jan. 09, 2025)
A good price-to-cash-flow ratio is any number below 10. Lower ratios show that a stock is undervalued when compared to its cash flows, meaning there is a better value in the stock. This can be perceived as a signal to buy.
Conventionally, a PB ratio of below 1.0, is considered indicative of an undervalued stock. Some value investors and financial analysts also consider any value under 3.0 as a good PB ratio.
What is a good PE and PB ratio? A “good” PE ratio varies by industry and market conditions, typically higher for growth companies. A PB ratio under 1 might indicate undervaluation. Both should be evaluated against industry averages and historical company performance for context.
Best Buy Co's Earnings per Share (Diluted) for the trailing twelve months (TTM) ended in Oct. 2024 was $5.85. Therefore, Best Buy Co's PE Ratio (TTM) for today is 14.49.
Investors and analysts consider stocks which have a P/E ratio of 50 or above to be an overvalued share, especially in comparison to a stock which has a ratio at par with or below 10.
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.
Face value itself does not determine a stock's worth or its potential for returns. Investors often wonder if buying shares with a lower face value (like ₹1) is better than those with a higher face value (like ₹10).
If (P/E / EPS growth rate) < 1.0 then the stock is undervalued. If 1.0 < (P/E / EPS growth rate) < 2.0 then the stock is near fair value. If (P/E / EPS growth rate) > 2.0 then the stock is overvalued.