If the price to book ratio is high, investors have high expectations for the company's future growth. 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.
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.
Price-to-book ratios below 1 are usually considered solid investments. A price-to-book less than 1 ratio could mean the stock is undervalued and worth buying. A price-to-book ratio greater than 1 indicates that the stock price is trading at a premium to the company's book value.
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.
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.
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.
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).
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.
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.
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.
Obviously, a higher current ratio is better for the business. A good current ratio is between 1.2 to 2, which means that the business has 2 times more current assets than liabilities to covers its debts.
As of today (2025-01-12), Best Buy Co's share price is $83.27. Best Buy Co's Book Value per Share for the quarter that ended in Oct. 2024 was $14.42. Hence, Best Buy Co's PB Ratio of today is 5.78.
2. Is higher face value good or bad? Higher Face means, a higher net worth of the company, great prospects, and good dividend payouts, and thus it can be considered beneficial for the investors.
While average ratios, as well as those considered “good” and “bad”, can vary substantially from sector to sector, a return on equity ratio of 15% to 20% is usually considered good. At 5%, the ratio would be considered low.
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.
P/ B < 1: A P/ B Ratio less than 1 suggests the stock is trading below its book value, potentially indicating an undervalued opportunity. Investors may consider such stocks as potential bargains. P/ B > 1: A P/B Ratio greater than 1 means the stock is trading above its book value, which could imply overvaluation.
What is a good inventory turnover ratio? For most industries, a good inventory turnover ratio is between 5 and 10, which indicates that you sell and restock your inventory every 1-2 months. This ratio strikes a good balance between having enough inventory on hand and not having to reorder too frequently.
As per the tenets of value investing, any value under 1 is considered a good value. However, investors often consider stocks with a PB ratio of under 3.
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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.
A low blood pressure reading is usually good. Some people with very low blood pressure have a condition called hypotension. This occurs when blood pressure is less than 90/60 mm Hg. Low blood pressure is usually not harmful unless there are other symptoms that concern a health care professional.