Explainer: What Is Price-To-Book Value?

The Indian stock market is touching new highs. The BSE Sensex touched the 62,000 mark and closed at an all-time high of 61,981 on November 16, 2022. Given the scenario, experts feel that valuations are not cheap, and investors should do a bit of cherry-picking and invest in undervalued stocks for better margin of safety. But ascertaining the valuation of stocks is not a simple exercise. You will need to use certain valuation techniques to analyse whether a particular stock is over or undervalued. One of the commonly used ratios that aids in this analysis is price-to-book value (PBV). It is a valuation tool that is used to identify value stocks. Let’s understand what it is, and the advantages and limitations of using it to identify such stocks. What Is It? To understand PBV, we will first need to understand what book value means. This is also called net worth and denotes the...