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Updated 2mo ago.
Updated 2mo ago.
The price-to-book ratio (P/B) compares a stock's price to the company's book value (its assets minus its liabilities). A P/B of 1 means the stock trades at exactly the value of its net assets. A P/B below 1 may indicate a bargain.
Canadian banks like those in ZEB.TO (BMO Equal Weight Banks) typically have a P/B between 1.2 and 1.8. Technology companies often have a much higher P/B (10+) because their value rests on intellectual property rather than physical assets. That's why the P/B ratio is more useful for comparing companies in the same sector.
The P/B ratio complements the P/E ratio for assessing whether an ETF or market is overvalued or undervalued. "Value" ETFs specifically target stocks with low P/B ratios. For beginners, understanding this ratio helps grasp the difference between "value" and "growth" investment styles.