Subscribe to RSS feeds Bulkowski Blog via RSS

Thomas Bulkowski’s successful investment activities allowed him to retire at age 36. He is an internationally known author and trader with 30+ years of stock market experience and widely regarded as a leading expert on chart patterns. He may be reached at

Support this site! Clicking the links (below) takes you to Amazon.com. If you buy ANYTHING, they pay for the referral.

Picture of the head's law.
Kindle
Paperback
Nook
Chart Patterns: After the Buy
Getting Started in Chart Patterns, Second Edition book.
Trading Basics: Evolution of a Trader book.
Fundamental Analysis and Position Trading: Evolution of a Trader book.
Swing and Day Trading: Evolution of a Trader book.
Visual Guide to Chart Patterns book.
Encyclopedia of Chart Patterns 2nd Edition book.

Bulkowski's Price to Book Value

Class Elliott Wave Fundamentals Psychology Quiz Research Setups Software Tutorials More...
Busted
Patterns
Candles Chart
Patterns
Event
Patterns
Small Patterns
Market
Industrials (^DJI):
Transports (^DJT):
Utilities (^DJU):
Nasdaq (^IXIC):
S&P500 (^GSPC):
As of 03/23/2017
20,657 -4.72 0.0%
8,936 -51.04 -0.6%
703 -1.87 -0.3%
5,818 -3.95 -0.1%
2,346 -2.49 -0.1%
YTD
4.5%
-1.2%
6.5%
8.1%
4.8%
Tom's Targets    Overview: 03/14/2017
21,250 or 20,600 by 04/15/2017
9,500 or 8,700 by 04/15/2017
675 or 715 by 04/01/2017
5,950 or 5,650 by 04/15/2017
2,425 or 2,325 by 04/15/2017
Mutt Losers: None YTD
Mutt Winners: None YTD

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information.

This page reviews the results from a study of the price to book value financial ratio.

My book, Fundamental Analysis and Position TradingFundamental Analysis and Position Trading: Evolution of a Trader book., shown on the left, devotes an entire chapter to book value.

It covers hidden assets, limits of book value, investing using book value, effects of buybacks on book value, the price to book value ratio, as well as discussing complete tests of book value and in combination with other fundamental analysis factors. If you use fundamentals in your trading, the book is a must read.

If you click on this link and then buy the book (or anything) at Amazon.com, the referral will help support this site. Thanks. -- Tom Bulkowski

$ $ $

Price to Book Value Summary

Book value is a measure of a company's net worth. Some claim that the financial manipulations in recent years has made the measure obsolete, but others claim it still offers value when using fundamental analysis to analyze a company. I find it comforting when I discover a company is worth $20 per share, but sells for only $10.

Value Line defines book value per share as "net worth (including intangible assets), less preferred stock at liquidating or redemption value, divided by common shares outstanding."

A study of the price to book value ratio shows that stocks having a low ratio outperform those with a high one 78% of the time. A low price to book number means that the book value is high relative to the stock's price.

A second test using almost 1,000 samples shows the same result, with stocks having price to book value ratios below the median beating the performance of those with ratios above the median by almost two times.

Price to Book Value Methodology

I used the Value Line investment survey and typed in their book value per share numbers to build a database of 178 stocks with data ranging from 12/30/1991 to 7/11/2008.

After completing the database, I logged the close-to-close price change from 1 to 5 years out, looking forward from the base year. The base year ranged from 1992 to 2006. Not all stocks covered the entire range. Years with no numbers were excluded. The price change measured from the close on the last trading day of each year. Years 2008 and later are not included since the year had not completed as of the time of this study.

Top of page   More

Price to Book Value Results

The following table shows the results of price to book value ratio (PBV) versus performance over time.

Base YearPBVMedian PBV1 year2 years3 years4 years5 yearsSamples
1992High2.02-0.3%-10.2%-2.0%8.6%14.2%34
Low14.8%1.9%11.8%22.3%28.1%35
1993High1.81-18.6%-4.0%9.6%15.5%11.6%37
Low-9.7%9.0%22.1%28.7%13.6%39
1994High1.6124.0%32.3%32.1%24.1%26.8%39
Low20.7%38.6%47.6%21.1%21.1%40
1995High1.8540.4%37.0%17.2%21.5%22.6%42
Low42.9%51.3%26.3%21.2%22.2%43
1996High2.5223.2%1.5%11.6%12.6%6.8%45
Low42.5%14.8%9.8%11.7%13.7%45
1997High3.03-11.0%10.9%8.4%3.4%0.4%46
Low-14.1%-7.0%1.0%4.0%1.0%47
1998High2.0742.8%7.0%6.1%-0.2%7.7%68
Low26.4%25.1%15.1%9.8%16.2%68
1999High2.54-31.2%-14.1%-13.8%-4.8%-1.1%73
Low20.3%13.4%5.7%13.6%19.6%73
2000High2.4-2.1%-8.0%2.6%7.3%9.6%75
Low15.6%0.0%15.9%21.3%21.3%75
2001High2.26-14.8%6.5%10.4%11.0%11.8%76
Low-10.0%12.1%20.8%22.8%25.2%76
2002High2.0132.4%26.9%21.8%19.1%17.3%78
Low42.6%45.9%42.6%44.8%39.3%79
2003High2.3918.8%13.8%12.9%11.0%80
Low30.3%27.2%28.4%24.8%80
2004High2.6318.7%15.6%17.7%83
Low14.8%17.1%12.0%83
2005High2.798.6%11.4%86
Low21.9%11.9%87
2006High3.0117.4%88
Low-4.4%89

Let's take an example using 2006. Stocks with a price to book value ratio above the median 3.01 had gains averaging 17.4% in 2007 compared to a loss of 4.4% for stocks with a price to book value ratio at or below the median. No more results appear for that row because the years had not ended when the study was done. There were 88 to 89 samples that qualified for the study.

If you count the yearly performance of each entry when the price to book value ratio was above or below the median, you will find that stocks with a low price to book value ratio outperformed those with a high ratio 78% of the time (51/65).

I consider this result preliminary and intend to expand the database and then publish my findings.

Second Test

In a second test, I compared stocks with price to book value ratios above and below the median of all stocks. The following table shows the results.

Price/book value1 Year MoveSamples
Over 2.388.8%958
Below or equal to 2.3815.7%951

Using almost 1,000 samples, I found that those stocks with price to book value ratios below or equal to the median outperformed those with ratios above the median from 1992 to 2007 on a 1 year basis. In other words, I computed each stock's price to book value ratio for 1992 and measured the price change from year end 1992 to year end 1993 and then moved to 1993 and started a new calculation, and so on until I ran out of data. Sorting the price to book value ratios and averaging the performance gave the results shown in the table.

-- Thomas Bulkowski

Top of page   More  

See Also

Written by and copyright © 2005-2017 by Thomas N. Bulkowski. All rights reserved. Disclaimer: You alone are responsible for your investment decisions. See Privacy/Disclaimer for more information. Q: Why do men find it difficult to make eye contact? A: Because breasts don't have eyes.