The Price to book (P/B) ratio compares market price to the company’s net assets. A high P/B in asset-heavy industries (e.g., banks) can suggest overvaluation.
Price to book ratios mean little on their own but can speak volumes compared to industry averages.
Here’s a ballpark guide to average P/B ratios by major industries (as of recent historical norms), so you can benchmark any stock:
🏦 Financials (Banks, Insurance)
- Typical P/B average: 0.8 – 1.5
- Since these companies have large asset bases, P/B is a primary valuation tool. A P/B below 1 can signal undervaluation or distress; above ~1.5 often suggests premium pricing.
🏗 Industrials / Manufacturing
- Typical P/B average: 1.5 – 3.0
- Asset-heavy but growth prospects vary; midrange P/B is common.
🏠 Real Estate (REITs)
- Typical P/B average: 0.8 – 2.0
- Book value reflects physical properties, so P/B near 1 is expected.
🔌 Utilities
- Typical P/B average: 1.0 – 2.0
- Stable earnings and asset bases lead to moderate, consistent P/Bs.
🏭 Energy (Oil, Gas)
- Typical P/B average: 1.0 – 2.5
- Tied to commodity cycles; P/B can swing widely with oil/gas prices.
💊 Healthcare / Pharmaceuticals
- Typical P/B average: 3.0 – 6.0
- Intangible assets like patents make book value less relevant but high P/Bs can reflect expected growth.
📱 Technology / Software
- Typical P/B average: 5.0 – 15.0+
- Many tech firms have few tangible assets but high earnings potential; P/B can skyrocket.
🛒 Consumer Discretionary & Staples
- Typical P/B average: 2.0 – 5.0
- Varies by sub-sector: luxury brands often command higher P/B than grocery chains.
🌐 Telecom & Media
- Typical P/B average: 1.5 – 4.0
- Asset-heavy but with potential growth tied to subscribers and content.
⚙️ Materials / Commodities
- Typical P/B average: 1.0 – 3.0
- Like energy, heavily tied to commodity prices.
Important Notes
- These are historical norms, not precise current figures — they vary with market cycles.
- Always compare to direct peers — e.g., comparing a regional bank with a global investment bank can mislead.
- For many asset-light companies (like software), P/B can be less useful since book value doesn’t capture IP or brand.
