What Is a Good Price to Book Ratio? A Value Investor's Guide

The price-to-book ratio is one of the oldest valuation metrics in investing. Benjamin Graham used it as a core filter in the 1930s. Warren Buffett built his early career partly around it. And yet it remains one of the most commonly misused numbers in stock analysis.

The academic backing for P/B as a valuation signal is substantial. In their 1992 paper, Fama and French studied US stocks across NYSE, AMEX, and NASDAQ from 1963 to 1990 and found that the book-to-market ratio — the inverse of P/B — was one of the two most powerful cross-sectional predictors of stock returns, alongside company size. The cheapest quintile by book-to-market outperformed the most expensive by approximately 0.50 percentage points per month on average. That is roughly six percentage points a year, compounding across nearly three decades of data.

The most common mistake: treating a low P/B as automatically attractive and a high P/B as expensive. In practice, what counts as "good" varies so much by industry that the number is almost meaningless without context. This article explains how to read it correctly.

What is the price to book ratio?

The price-to-book ratio (P/B ratio, sometimes called price-to-book value) compares a company's share price to its book value per share.

Book value is what shareholders would theoretically receive if the company were wound up today: total assets minus total liabilities. Divide that by shares outstanding and you have book value per share.

The formula is straightforward:

P/B Ratio = Share Price / Book Value Per Share

Or equivalently:

P/B Ratio = Market Capitalisation / Total Shareholders' Equity

A P/B of 1.0 means the market values the company at exactly its net asset value. A P/B of 2.0 means investors are paying twice book value. A P/B of 0.7 means the stock trades at a 30% discount to its stated net assets.

What is a good price to book ratio?

The honest answer is: it depends entirely on the industry.

Here's a rough guide by sector:

Benjamin Graham, writing in the 1930s and 1940s when manufacturing dominated the economy, used P/B below 1.5 as a prerequisite for value investing. His target was stocks trading at a significant discount to their physical assets. That benchmark remains useful for asset-heavy industries. It is largely irrelevant for the software companies that now dominate the major indices.

Why industry context matters so much

Consider two companies, both with a P/B of 3.0.

The first is a regional bank. Its assets are primarily loans and securities — relatively liquid, valued at or near market. A P/B of 3.0 for a bank would be extremely elevated and would imply extraordinary expected returns on equity. Most banks trade between 0.8 and 1.5 times book.

The second is a software company. Its balance sheet is mostly cash and some servers. Its real assets are the product, the customer base, the engineering team — none of which appear on the balance sheet. A P/B of 3.0 for a profitable software business might actually be cheap.

Same number. Completely different interpretation.

This is why comparing P/B ratios across sectors is a mistake that consistently trips up newer investors. The metric was designed for a world of physical assets. It works best when those assets are real, liquid, and accurately stated on the balance sheet.

When P/B below 1 is genuinely interesting

A stock trading below book value means the market is pricing it at less than the net assets on the balance sheet. This can happen for several reasons:

• Expected future losses — if the business is losing money, book value will erode over time. The market is pricing that in.
• Asset quality concerns — stated assets may be worth less than their balance sheet value (bad loans, obsolete inventory).
• Low return on equity — a company generating returns below its cost of capital structurally deserves to trade below book.
• Genuine undervaluation — occasionally, the market misprices a stock and the discount is not justified by fundamentals.

The fourth case is what value investors are looking for. The challenge is distinguishing it from the first three.

When I filter StockPik for US stocks with a P/B ratio below 1.0, I get around 400 names that also carry a positive value score. Extending the filter to P/B below 1.5 (Benjamin Graham's original ceiling) returns roughly 700 stocks. You can browse the full list of stocks below book value as a starting point.

The stocks most worth investigating at P/B below 1 are ones that are still profitable, generating positive cash flow, carrying manageable debt, and showing no obvious deterioration in financial quality. A high Piotroski F-Score (7 or above) is one systematic way to filter for this — it checks exactly those criteria using the published financial statements.

A real example: Citigroup (C)

Citigroup is one of the most documented cases of a large-cap stock trading persistently below book value. The bank has traded at a significant discount to its stated net assets for most of the period since the 2008 financial crisis.

The numbers from Citigroup's most recent annual filing:

• Total shareholders' equity: approximately $204 billion
• Shares outstanding: approximately 1.9 billion
• Book value per share: approximately $107
• Share price (early 2025): approximately $65–70
• P/B ratio: approximately 0.62x

On a pure P/B basis, Citigroup looks like deep value: you are paying 62 cents for every dollar of net assets. So why isn't every value investor piling in?

The ROE connection explains it. Citigroup's return on equity has run between 6% and 9% in recent years — below most estimates of its cost of equity (roughly 10–12%). A company that earns less than its cost of capital structurally deserves to trade below book, because each additional dollar retained by the business generates less than a dollar of value for shareholders. The P/B discount is the market correctly pricing the ROE shortfall.

That doesn't make Citigroup a bad investment. The bank is midway through a multi-year overhaul under CEO Jane Fraser, and if ROE climbs toward 10–12%, the discount could close substantially. But that's a thesis about future ROE improvement, not a simple "cheap on P/B" argument. The difference matters.

The Citigroup example keeps coming back to the same question: is the discount caused by a structural ROE problem, or by temporary mispricing? If the former, the market is right. If the latter, it's an opportunity.

The return on equity connection

A cleaner frame: over the long run, a company's P/B ratio should roughly reflect its return on equity (ROE) relative to its cost of equity.

A company earning 20% ROE consistently deserves to trade at a premium to book value, because each dollar of equity is generating 20 cents of profit. A company earning 5% ROE, barely above the risk-free rate, should trade close to book. A company destroying value with negative ROE should arguably trade below book.

This means a low P/B paired with high ROE is a genuinely interesting combination: the market is undervaluing a business that is generating good returns on its assets. A low P/B paired with weak or negative ROE is more often a trap.

Limitations of the P/B ratio

The P/B ratio has some well-known blind spots:

Intangible assets are usually excluded. Brand value, patents, software, and customer relationships do not appear on most balance sheets (unless they were acquired through a purchase). For companies where these are the main source of value, book value is largely irrelevant. This makes P/B a poor metric for consumer brands, pharmaceuticals, and most technology companies.

Share buybacks can distort the ratio. When a company buys back shares above book value, shareholders' equity decreases even as intrinsic value arguably increases. Companies with aggressive buyback programs can end up with very low or even negative book value, making P/B meaningless.

Asset quality varies. Two companies with identical book values might have very different asset quality. A bank's book value is only as good as its loan portfolio. A manufacturer's book value is only as good as its inventory and equipment. The ratio does not tell you whether the assets are actually worth what the balance sheet says.

Industry accounting differences. Different sectors use different accounting conventions for depreciation, inventory valuation, and asset recognition. Cross-sector comparison requires adjustments that are rarely practical for individual investors.

Using P/B in a stock screen

All that said, P/B is still useful as one input in a broader screen. The approach I find most practical:

1. Filter by sector first. Set P/B thresholds appropriate to the industry (below 1.5 for financials and industrials, for instance — not for tech).
2. Add a profitability filter. Stocks that are genuinely cheap on P/B should still be earning money. A positive P/E ratio is a basic sanity check.
3. Check financial health. The Piotroski F-Score quickly separates improving businesses from deteriorating ones. A stock with P/B below 1 and F-Score below 4 is a candidate for a value trap, not a value investment.
4. Consider the Graham Number. For manufacturing and financial companies, Benjamin Graham's formula — which incorporates both EPS and book value — gives a rough estimate of intrinsic value. You can read more about how it works in our guide to the Benjamin Graham intrinsic value formula.

StockPik's screener lets you combine all of these filters in one place across 6,000+ US stocks. The P/B filter, Graham Number margin of safety, Piotroski F-Score, and P/E are all available from the main screener.

Bottom line

A "good" price-to-book ratio depends on the industry. For asset-heavy sectors — banks, insurers, manufacturers — P/B below 1.5 is attractive and below 1.0 is deep value territory. For asset-light sectors, the ratio is a poor guide.

A low P/B is a starting point, not a conclusion. The most useful question it prompts is: why is this stock cheap relative to its assets? When the answer is "no good reason I can find, and the business is still healthy," that is when it becomes interesting. When the answer is "because the business is deteriorating," the low P/B is the market being right.

The stocks below book value page shows the top-ranked US stocks currently trading at P/B under 1.0, sorted by value score and filtered for quality. It's a reasonable place to start if you're looking for asset-cheap stocks worth further research.

Sources

• Graham, B., & Dodd, D. (1934). Security Analysis. McGraw-Hill.
• Graham, B. (1949). The Intelligent Investor. Harper & Brothers.
• Fama, E., & French, K. (1992). The Cross-Section of Expected Stock Returns. Journal of Finance, 47(2), 427-465.
• Piotroski, J. (2000). Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers. Journal of Accounting Research, 38, 1-41.
• Citigroup Inc. FY2024 Annual Report (Form 10-K), filed with the SEC.
• SEC EDGAR: source of all financial statement data used by StockPik.