Price to Book Value

As of 12/20/2024

Indus: 42,840 +498.02 +1.2%

Trans: 15,892 +32.54 +0.2%

Utils: 986 +14.76 +1.5%

Nasdaq: 19,573 +199.83 +1.0%

S&P 500: 5,931 +63.77 +1.1%

YTD

+13.7%

0.0%

+11.9%

+30.4%

+24.3%

Targets Overview: 12/12/2024

44,200 or 41,750 by 01/01/2025

16,100 or 17,700 by 01/01/2025

1,050 or 975 by 01/01/2025

20,500 or 19,300 by 01/01/2025

6,100 or 5,775 by 01/01/2025

Chart Pattern Indicator:

on 12/5/24

As of 12/20/2024

Indus: 42,840 +498.02 +1.2%

Trans: 15,892 +32.54 +0.2%

Utils: 986 +14.76 +1.5%

Nasdaq: 19,573 +199.83 +1.0%

S&P 500: 5,931 +63.77 +1.1%

YTD

+13.7%

0.0%

+11.9%

+30.4%

+24.3%

Targets Overview: 12/12/2024

44,200 or 41,750 by 01/01/2025

16,100 or 17,700 by 01/01/2025

1,050 or 975 by 01/01/2025

20,500 or 19,300 by 01/01/2025

6,100 or 5,775 by 01/01/2025

Chart Pattern Indicator:

on 12/5/24

Bulkowski on Price 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 the above link and then buy the book (or anything) while at Amazon.com, the referral will help support this site. Thanks.

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.

Price to Book Value: Results

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

Base Year	PBV	Median PBV	1 year	2 years	3 years	4 years	5 years	Samples
1992	High	2.02	-0.3%	-10.2%	-2.0%	8.6%	14.2%	34
	Low		14.8%	1.9%	11.8%	22.3%	28.1%	35
1993	High	1.81	-18.6%	-4.0%	9.6%	15.5%	11.6%	37
	Low		-9.7%	9.0%	22.1%	28.7%	13.6%	39
1994	High	1.61	24.0%	32.3%	32.1%	24.1%	26.8%	39
	Low		20.7%	38.6%	47.6%	21.1%	21.1%	40
1995	High	1.85	40.4%	37.0%	17.2%	21.5%	22.6%	42
	Low		42.9%	51.3%	26.3%	21.2%	22.2%	43
1996	High	2.52	23.2%	1.5%	11.6%	12.6%	6.8%	45
	Low		42.5%	14.8%	9.8%	11.7%	13.7%	45
1997	High	3.03	-11.0%	10.9%	8.4%	3.4%	0.4%	46
	Low		-14.1%	-7.0%	1.0%	4.0%	1.0%	47
1998	High	2.07	42.8%	7.0%	6.1%	-0.2%	7.7%	68
	Low		26.4%	25.1%	15.1%	9.8%	16.2%	68
1999	High	2.54	-31.2%	-14.1%	-13.8%	-4.8%	-1.1%	73
	Low		20.3%	13.4%	5.7%	13.6%	19.6%	73
2000	High	2.4	-2.1%	-8.0%	2.6%	7.3%	9.6%	75
	Low		15.6%	0.0%	15.9%	21.3%	21.3%	75
2001	High	2.26	-14.8%	6.5%	10.4%	11.0%	11.8%	76
	Low		-10.0%	12.1%	20.8%	22.8%	25.2%	76
2002	High	2.01	32.4%	26.9%	21.8%	19.1%	17.3%	78
	Low		42.6%	45.9%	42.6%	44.8%	39.3%	79
2003	High	2.39	18.8%	13.8%	12.9%	11.0%		80
	Low		30.3%	27.2%	28.4%	24.8%		80
2004	High	2.63	18.7%	15.6%	17.7%			83
	Low		14.8%	17.1%	12.0%			83
2005	High	2.79	8.6%	11.4%				86
	Low		21.9%	11.9%				87
2006	High	3.01	17.4%					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).

Price to Book Value: 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.

Using almost 1,000 samples, I found that 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.

Price/book value	1 Year Move	Samples
Over 2.38	8.8%	958
Below or equal to 2.38	15.7%	951

Bulkowski on Price to Book Value