Price To Book Value (P/BV)
Price to book value is just another ratio that used to evaluate a company fundamentally. Investor use price to book value to evaluate whether a company is undervalue or overvalue as this is the main purpose for fundamental investing. Here is the formula for calculating P/BV.
In simple words, price to book value refers to number of times the share price of a company compare to the company book value. Right here, book value means net tangible assets per share (NTA/S). If a company have total assets of RM10 and total liabilities of RM6 and have a total of 10 shares. Then the company book value will be RM0.4.
If Company ABC has a book value of RM1 and its market share price is trading at RM1.20. its P/BV will be 1.20. Fair value for P/BV would be 1.5 times. Therefore, with P/BV of 1.20 definitely is consider undervalue stock.
Again, P/BV isn’t a foolproof ratio. It depends on company running in which sector. Usually, price to book ratio fit well in industrial sector. Technology sector most probably will have high P/BV.
