Price-to-Book Ratio: When a Low P/B Means Value, and When It Means Trouble
Joan Sacdalan
The price-to-book ratio compares a company's share price with its book value per share, the accounting net worth behind each share. A P/B of 1 means you pay $1 for every $1 of net assets on the balance sheet; a P/B of 3 means you pay $3.
Book value is what would be left for shareholders if a company sold its assets at their balance-sheet values and paid off all its debts. The price-to-book ratio is most useful for banks, insurers and other asset-heavy businesses, and least useful for software or brand-driven companies.
This guide is for investors who pick their own stocks. You will learn how to calculate book value per share and P/B from a 10-Q, what a good P/B looks like by industry in 2026, why a high P/B can be deserved, and when a low one is a trap.
Key takeaways
Price-to-book ratio = share price ÷ book value per share, where book value per share is common shareholders' equity divided by common shares outstanding.
JPMorgan Chase traded at 2.55 times its $132.30 book value per share on November 5, 2026, while Bank of America traded at 1.27 times its $39.26.
Return on equity explains much of the gap: across 92 US industries in January 2026, those earning 25% or more on equity had a median P/B of 7.2×, against 2.0× for those earning 0% to 10%.
Buying low P/B stocks paid off for 80 years but not recently: the Fama-French value factor averaged +5.9% a year from 1927 to 2006 and −3.0% a year from 2007 to 2025.
Share buybacks shrink book value: McDonald's reported negative shareholders' equity of −$1.02 billion on June 30, 2026, so its P/B has no useful meaning.
What is the price-to-book ratio?
The price-to-book ratio (P/B) is a company's share price divided by its book value per share. You can also calculate it for the whole company: market capitalization ÷ common shareholders' equity gives the same answer.
P/B tells you how much the stock market charges you for each dollar of net assets the company reports. Value investors like P/B because book value moves slowly and rarely turns negative, unlike earnings.
Book value (shareholders' equity) is total assets minus total liabilities, as reported on the balance sheet. Common equity is book value minus any preferred stock, because preferred shareholders are paid before common shareholders.
How do you calculate book value per share?
Book value per share (BVPS) is common shareholders' equity divided by the number of common shares outstanding at the balance-sheet date. Use the figures from the same 10-Q or 10-K so the equity and the share count match.
- Book value per share = (total shareholders' equity − preferred stock) ÷ common shares outstanding.
- Tangible book value per share (TBVPS) = (common equity − goodwill − other intangible assets) ÷ common shares outstanding. Banks report it because goodwill cannot absorb losses.
- Price-to-book = share price ÷ BVPS. Price-to-tangible-book (P/TBV) = share price ÷ TBVPS.
Book value per share rises when a company retains profits and falls when it pays dividends, buys back stock above book value, or books losses and write-downs.
What does a P/B below 1 or above 1 mean?
A P/B below 1 means the market values the company at less than its accounting net worth. Either the stock is cheap, or investors expect the assets to be worth less than their book value, for example because of bad loans or a shrinking business.
A P/B above 1 means investors expect the company to earn more on its equity than they could earn elsewhere. Most profitable US companies trade above 1; the aggregate P/B of 5,994 US companies was 4.61 in January 2026, according to Aswath Damodaran at NYU Stern.
How do you calculate P/B from a 10-Q? A JPMorgan example
JPMorgan Chase traded at 2.55 times book value at the November 5, 2026 close. Here is the calculation from its 10-Q for the quarter ended September 30, 2026, filed on November 3, 2026.
- Find total stockholders' equity. JPMorgan's balance sheet lists total stockholders' equity of $372,368 million on September 30, 2026.
- Subtract preferred stock. Preferred stock was $21,040 million, so common stockholders' equity is $372,368 million − $21,040 million = $351,328 million.
- Divide by common shares. JPMorgan had 2,655.6 million common shares at period end. $351,328 million ÷ 2,655.6 million = $132.30 book value per share, the same figure JPMorgan reports.
- Divide the price by BVPS. JPMorgan closed at $337.34 on November 5, 2026. $337.34 ÷ $132.30 = 2.55× price-to-book.
- Repeat with tangible book. JPMorgan reports tangible book value of $112.64 per share. $337.34 ÷ $112.64 = 2.99× price-to-tangible-book.
The same steps for Bank of America give a very different answer. Bank of America reported book value of $39.26 and tangible book value of $29.14 per share for the third quarter of 2026. At its $49.76 close, it traded at 1.27× book and 1.71× tangible book.
Return on equity (ROE), net income ÷ common equity, explains most of the gap. JPMorgan reported a 20% ROE for the first nine months of 2026. Bank of America reported 9.4% for the third quarter, or 11.1% excluding a $1.2 billion regulatory settlement charge.
How does JPMorgan's P/B compare with other large companies?
JPMorgan's 2.55× is high for a bank but low next to the largest non-financial companies. The chart below uses each company's latest 10-Q or 10-K and the November 5, 2026 close.
Price-to-book ratio of large US companies, November 5, 2026 close
Apple is missing from the chart because its P/B of 44.6× would stretch the scale. Apple's equity of $112.1 billion on September 26, 2026 is small next to its value because Apple spent $799.6 billion on share buybacks in fiscal 2016 to 2026, according to its 10-K filings.
What is a good price-to-book ratio?
A good price-to-book ratio is one at or below the average for the company's industry, backed by a return on equity at or above that industry's average. There is no single good number, because the norm ranges from about 1× for regional banks to above 9× for software makers.
The table shows Damodaran's January 2026 industry averages for US companies. Use the industry row, not the market average, as your first yardstick.
| Industry (Jan 2026) | Firms | P/B | ROE | Is P/B a good guide? |
|---|---|---|---|---|
| Banks (regional) | 568 | 1.14× | 9.8% | Yes |
| Banks (money center) | 15 | 1.62× | 12.9% | Yes |
| Insurance (life) | 20 | 1.43× | 12.9% | Yes |
| Oil and gas (production) | 142 | 1.36× | 12.2% | Yes, with commodity prices |
| Homebuilding | 30 | 1.63× | 14.2% | Yes |
| Utility (general) | 14 | 1.81× | 10.4% | Yes |
| Household products | 110 | 5.85× | 27.0% | No, brands are off the books |
| Software (system and application) | 309 | 9.14× | 29.6% | No, value is intangible |
| Semiconductors | 66 | 13.31× | 31.4% | No |
| Restaurants and dining | 64 | 74.74× | 0.1% | No, buybacks shrink equity |
Source: Aswath Damodaran, Price and Value to Book Ratio by Sector, NYU Stern, updated January 2026. ROE is the industry aggregate.
Good, average and warning values
- Good: P/B below the industry average while ROE is at or above it. For example, a bank at 1.3× book when large banks average 1.62× and its ROE matches theirs.
- Average: P/B within about 20% of the industry average and ROE in line. Most stocks sit here most of the time.
- Warning: P/B below 1 with ROE below the cost of equity, falling book value for several quarters, or book value that is negative.
For banks, compare price-to-tangible-book, not plain P/B. Goodwill from past acquisitions cannot cover loan losses, so tangible book is the cushion that matters in a downturn.
Why do some companies deserve a high P/B? Our research
A company deserves a higher P/B when it earns a higher return on equity, because each dollar of book value produces more profit. Our analysis of Damodaran's 92 US industry averages for January 2026 confirms the link.
Method: we took every industry with both a P/B and an ROE figure, grouped them by ROE, and took the median P/B of each group. The rank correlation between ROE and P/B across all 92 industries was 0.46, a moderate positive link.
Median price-to-book ratio by return on equity, 92 US industries, January 2026
Industries with negative ROE break the pattern, with a median P/B of 3.85×. Most are young businesses such as biotechnology, where investors pay for future products that are not yet on the balance sheet.
What is the justified P/B formula?
The justified price-to-book ratio is (ROE − g) ÷ (r − g), where g is the long-term growth rate and r is the cost of equity, the return shareholders require. It follows from a dividend discount model and shows why ROE drives P/B.
Illustrative example. Damodaran puts the January 2026 cost of equity for US money-center banks at 7.34%. Assume 3% long-term growth. At a 20% ROE, the justified P/B is (20% − 3%) ÷ (7.34% − 3%) = 3.92×. JPMorgan trades at 2.55×, which implies the market expects its ROE to average about 3% + 2.55 × 4.34% = 14.1% over the long run, below today's 20%.
The justified P/B formula is very sensitive to growth. Change g from 3% to 4% in the example above and the answer jumps from 3.92× to 4.79×. Use it to understand what a price implies, not as a price target.
How does P/B compare with P/E, P/TBV and EV/EBITDA?
The price-to-book ratio is the best of the common valuation ratios for banks and insurers and the weakest for companies whose value is in brands, software or patents. Pair it with a profit-based ratio for every other business.
| Ratio | What it measures | Best for | Weak spot |
|---|---|---|---|
| Price-to-book (P/B) | Price per $1 of accounting net assets | Banks, insurers, asset-heavy firms, loss-making companies | Ignores intangibles; distorted by buybacks |
| Price-to-tangible-book (P/TBV) | Price per $1 of net assets excluding goodwill and intangibles | Banks and lenders | Even harsher on brand and software companies |
| Price-to-earnings (P/E) | Price per $1 of yearly profit | Steady, profitable companies | Useless when earnings are negative or one-off |
| EV/EBITDA | Company value including debt per $1 of operating profit before depreciation | Comparing firms with different debt levels | Not used for banks; ignores capital spending |
| Free cash flow yield | Cash left after capital spending per $1 of market value | Mature cash-generating businesses | Lumpy from year to year |
- P/B pros: book value is stable, rarely negative, and works when earnings are temporarily depressed.
- P/B cons: book value records assets at historical cost and leaves out internally built brands, research and customer relationships.
- P/E pros and cons: it ties price to profit, which drives value, but one bad year makes it meaningless. See what counts as a good P/E ratio.
- Cash-flow measures: they show what a business can actually pay out. See why free cash flow matters more than earnings.
Which P/B approach is best for you?
Price-to-book suits investors who analyse balance-sheet businesses and want a valuation anchor that does not swing with one quarter's profit. It suits growth and technology investors much less.
Best for bank and insurance investors
Use price-to-tangible-book next to ROE or return on tangible common equity. JPMorgan's 2.99× P/TBV against Bank of America's 1.71× is mostly a judgment on which bank earns more on its capital.
Best for deep-value investors
Screen for P/B below the industry average, then test whether book value is real: check loan losses, inventory write-downs and asset sales. Read our step-by-step guide to finding undervalued stocks for the full process.
Best for beginners
Use P/B only to compare companies inside one industry, such as two regional banks. Do not compare a bank's P/B with a software company's.
Not right for
P/B is not right for software, consumer brands, restaurants or any company with large buybacks. For those, a fair-value estimate based on cash flows works better; see how to calculate intrinsic value.
What does checking a P/B cost, and how long does it take?
Checking a price-to-book ratio is free and takes about 10 minutes per company. Company 10-Q and 10-K filings are free on SEC EDGAR, Damodaran's industry averages are free at NYU Stern, and brokers show live prices at no cost.
- Time: 5 minutes to pull equity, preferred stock and shares from the balance sheet; 5 minutes to compare with the industry average.
- Effort: low for banks, which publish BVPS and TBVPS in their earnings releases; higher for companies with several share classes.
- After you act: book value changes every quarter, so recheck P/B after each 10-Q and after any large acquisition or write-down.
What are the common price-to-book mistakes?
The most common price-to-book mistake is treating a low P/B as proof that a stock is cheap. These five errors cause most bad P/B decisions.
- Comparing across industries. A 1.6× bank and a 9.1× software company are not comparable; their assets are measured in different ways.
- Ignoring buybacks. Buybacks above book value reduce book value per share. McDonald's reported shareholders' equity of −$1.02 billion on June 30, 2026, so its P/B cannot be calculated meaningfully.
- Forgetting preferred stock. Leaving JPMorgan's $21.0 billion of preferred stock in the calculation would overstate book value per share by about 6%.
- Trusting stale book values. Bad loans, obsolete inventory and impaired goodwill often hit book value one or two quarters after the stock price falls.
- Ignoring ROE. A company earning less than its cost of equity can deserve a P/B below 1 for years.
Warren Buffett stopped reporting Berkshire Hathaway's book value as its main scorecard for the same reasons:
"The fact is that the annual change in Berkshire's book value ... is a metric that has lost the relevance it once had."
— Warren Buffett, Chairman, Berkshire Hathaway, 2018 letter to shareholders (2019)
Does buying low P/B stocks still work? The contrarian view
Buying low price-to-book stocks has not worked as a stand-alone strategy since 2007. Most guides still present a low P/B as a value signal, but the data behind that idea has weakened.
Eugene Fama and Kenneth French showed in 1992 that stocks with high book-to-market ratios (low P/B) earned higher returns. Their value factor, HML ("high minus low"), is the return of low-P/B stocks minus the return of high-P/B stocks, and Kenneth French publishes it every month.
Value factor (low P/B minus high P/B): average yearly return by decade, 1930–2025
From 1927 to 2006 the factor averaged +5.9% a year and was positive in 52 of 80 years. From 2007 to 2025 it averaged −3.0% a year and was positive in only 7 of 19 years; $1 invested in the long-short factor at the start of 2007 was worth $0.42 at the end of 2025.
One likely reason is the one Buffett gave: more of today's corporate value sits in intangibles and is returned through buybacks, neither of which book value captures. A low P/B still matters for banks and insurers, but it is a starting point, not a signal.
How should you judge a P/B? The TruthSayer Book Value Check
The TruthSayer Book Value Check is a five-step test for deciding whether a price-to-book ratio means anything for a stock.
- Is book value meaningful? Use P/B only if tangible assets drive the business (banks, insurers, energy, homebuilders) and equity is positive.
- Calculate it cleanly. Subtract preferred stock, use period-end shares, and calculate P/TBV for any company with large goodwill.
- Compare with the industry. Put the P/B next to the industry average from Damodaran's latest data, not the market average.
- Match it with ROE. A P/B below the industry is attractive only if ROE is at or above the industry. Work out the ROE the price implies.
- Test the book. Read the latest 10-Q for loan losses, write-downs and buybacks that could shrink book value next quarter.
How does TruthSayer AI use price-to-book?
TruthSayer's Valuations AI does not buy stocks because their price-to-book ratio is low. It combines proprietary fair-value models with price action, institutional activity and fundamental financial data to find potentially mispriced US-listed stocks, and every signal is traded in a funded account before members see it.
Mastercard shows why. On March 31, 2026, Mastercard reported shareholders' equity of $6.72 billion, about $7.52 per share on 893 million diluted shares, after $69.5 billion of buybacks from 2016 to 2025. At $504.29, its P/B was about 67×, so any P/B screen would have rejected it. Valuations AI flagged it as undervalued and bought at $504.29 on April 9, 2026, then closed at $597.42 on October 12, 2026, an 18.07% gain over 186 days.
One trade proves nothing, so judge the full record. As of November 6, 2026, the Valuations AI page shows a 77.39% return since inception, a 72.1% historical win rate and an average hold of 78 days, and its trade list includes losing trades. TruthSayer AI claims compliance with GIPS®, the global performance reporting standard; see our GIPS reports and verification.
Company P/B ratios use the November 5, 2026 close and the latest balance sheet in each company's 10-Q or 10-K on SEC EDGAR; JPMorgan and Bank of America book values are the figures they report. Industry figures are Damodaran's January 2026 data. The ROE bands are our own grouping of that data, and the value-factor figures are our averages of Kenneth French's annual HML series.
What should you do after you check a P/B?
After you check a price-to-book ratio, decide which of three cases you are in, then do the matching next step.
- P/B is low and ROE is solid: estimate a fair value with cash flows and set a buy-below price. Our guide to how much margin of safety you need shows how.
- P/B is low and ROE is weak: look for a reason ROE will recover within two to three years. If you cannot find one, move on.
- P/B is high: check whether buybacks or intangibles explain it, then judge the stock on earnings and cash flow instead.
To go deeper, read what intrinsic value is and how to calculate it, what a good P/E ratio looks like and why free cash flow matters more than earnings. Look up any unfamiliar term in our investing glossary, or see live undervalued and overvalued calls on Valuations AI.
The bottom line: The price-to-book ratio is a strong tool for banks, insurers and other asset-heavy companies and a weak one for brand, software and buyback-heavy companies. Run the TruthSayer Book Value Check: confirm book value is meaningful, calculate it cleanly, compare with the industry, and match it with ROE. A low P/B is a reason to research a stock, not a reason to buy it.
Frequently asked questions
What is a good price-to-book ratio?
A good price-to-book ratio is below the company's industry average with ROE at or above that industry's level. In January 2026, Damodaran's data put US regional banks at 1.14×, money-center banks at 1.62× and the whole US market at 4.61×. Compare within an industry, because the norms differ by more than five times.
Is a P/B ratio under 1 a buy signal?
No. A P/B under 1 means the market values the company below its accounting net worth, which often reflects expected losses or a return on equity below the cost of equity. Check ROE, loan quality and write-downs in the latest 10-Q first. The low-P/B value factor averaged −3.0% a year from 2007 to 2025.
How do you calculate book value per share?
Book value per share equals total shareholders' equity minus preferred stock, divided by common shares outstanding. For JPMorgan on September 30, 2026: ($372,368 million − $21,040 million) ÷ 2,655.6 million shares = $132.30. Take all three numbers from the same 10-Q or 10-K balance sheet.
Why is Apple's price-to-book ratio so high?
Apple's price-to-book ratio was 44.6× on November 5, 2026 mainly because buybacks have kept its book value small. Apple spent $799.6 billion repurchasing shares in fiscal 2016 to 2026, against shareholders' equity of $112.1 billion on September 26, 2026. Its brand and software are also not on the balance sheet.
What should I do after I find a stock with a low P/B?
Run the five steps of the TruthSayer Book Value Check, then estimate a fair value with cash flows and set a buy-below price with a margin of safety. Read the last two 10-Qs for falling book value, loan losses or write-downs. If ROE is below about 7%, near the 7.34% cost of equity for large banks, expect the discount to persist.
How often should I recheck a company's P/B?
Recheck a price-to-book ratio after every quarterly report, about every three months, because book value changes with each 10-Q. Recheck sooner after an acquisition, a large write-down or a new buyback program. JPMorgan's book value per share rose from $124.96 to $132.30 between September 2025 and September 2026.
Sources
- JPMorgan Chase, Form 10-Q for the quarter ended September 30, 2026, SEC EDGAR (filed Nov 3, 2026)
- Bank of America, third-quarter 2026 earnings release (Form 8-K exhibit 99.1) (Oct 14, 2026)
- SEC EDGAR company filings and XBRL data for Wells Fargo, Goldman Sachs, Amazon, Microsoft, Coca-Cola, Tesla, Apple, Mastercard and McDonald's (filings through Nov 3, 2026)
- Aswath Damodaran, Price and Value to Book Ratio by Sector (US), NYU Stern (Jan 2026)
- Aswath Damodaran, Cost of Equity and Capital by Sector (US), NYU Stern (Jan 2026)
- Kenneth R. French Data Library, Fama/French 3 Factors, annual HML (file built from CRSP data through Sep 2026)
- Eugene F. Fama and Kenneth R. French, "The Cross-Section of Expected Stock Returns", Journal of Finance (1992)
- Warren Buffett, Berkshire Hathaway 2018 Annual Report, letter to shareholders (Feb 2019)
- Intrinio, US equity closing prices (Cboe One) (Nov 5, 2026)
- TruthSayer AI, Valuations AI performance and trade list (Nov 6, 2026)
This article is for educational purposes only and is not investment advice. Past performance does not guarantee future results.
Joan Sacdalan
Joan specializes in financial data analytics, market intelligence, and investment research at TruthSayer AI. Her expertise spans fundamental and technical analysis, emerging market trends, and data-driven investment strategies, turning complex financial data into clear, actionable intelligence for risk-aware investors.
