Asset-heavy industries
Banks, insurers, real estate, and capital-intensive industrials trade on P/B because book value is a meaningful measure of liquidation worth and regulatory capital.
Definition
What is the P/B ratio?
The P/B ratio (price-to-book) is share price divided by book value per share. Book value is total assets minus total liabilities divided by shares outstanding. Benjamin Graham used P/B as his deep-value anchor: a P/B near or below 1 signals the market values the business at or below its net assets.
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Short answer
Graham's thinking: if you could buy a business for less than what it would fetch in an orderly liquidation, you bought a dollar for fifty cents. P/B is the simplest expression of that idea. Modern accounting and intangible-heavy business models limit its scope, but it remains a powerful tool for banks, insurers, real estate, and old-economy cyclicals.
Where P/B is useful and where it misleads
Asset-light businesses
Software, services, and brand-driven consumer companies hold most value off-balance-sheet. P/B is misleading here. Visa trades at 14x book yet earns 50 percent ROIC.
Cyclical bottoms
Cyclical companies trading below 1x tangible book have historically clustered near cycle troughs. Graham's net-net screen still appears in deep-value strategies.
A worked example
Citigroup recently traded around 65 dollars per share with tangible book value per share near 90 dollars. P/B on tangible book is 65 divided by 90, or about 0.72. That tells a Graham follower the market values the bank at 28 percent below its net tangible assets, often a signal of dislocation or distress. The interpretive work is then identifying which it is.
invest-like surfaces P/B inside the Graham-Fit reasoning; see /methodology/.
Related
- Seven-framework methodology hub - how P/B enters the valuation pillar across all seven framework rubrics invest-like scores stocks against.
- Top Graham-fit stocks today - Graham's defensive screen and net-net cap rely on P/B more heavily than any other framework; this is the live ranking.
See P/B reasoning in framework verdicts
invest-like reports P/B inside Graham-Fit and the deep value pillar of every fair-value verdict.
Educational only. invest-like is not a registered investment adviser; nothing here is personalised investment advice. Always do your own research and consider your individual circumstances.