Price-to-Book Ratio (P/B)

Price-to-book compares a stock's price to its book value per share — the accounting net worth on the balance sheet. Below 1.0, the market values the company at less than its assets minus its liabilities; above 1.0, it is paying a premium over the accounting value.

P/B does its best work on balance-sheet businesses: banks, insurers, and asset-heavy industrials, where book value approximates real economic value. It tells you little about software or brands, because the assets that matter there — code, users, reputation — mostly are not on the books. That is why a great software company can trade at 15x book without being expensive.

A stock under 1x book is either a bargain or a warning. Sometimes the market is wrong; more often it is pricing in future writedowns the accountants have not booked yet.