Conclusion:

The Price to Book Ratio (P/B) is one of the most important key figures in the valuation of stocks. Unfortunately, the P/B, which is shown on stock portals, is often out of date and not always correct. Only if you calculate the P/B yourself you know where the data for the calculation comes from and how up-to-date the share price used is. A P/B of less than 1-3 can both indicate a cheap company and indicate serious problems in the company.

The P/B is therefore not suitable as the sole valuation indicator and only the joint consideration of various indicators provides information about whether a share is actually a bargain. We have also created additional calculators and explanations for other key figures. In the free online calculators section you will find other useful calculators that facilitate the valuation process of stocks.

The Price to Book ratio (P/B) together with the Price / Earnings Ratio (P/E) and the Price / Sales ratio (P/S) can indicate not only cheap stocks but also cheap sectors, especially in a cross-sector view. The average values of these key figures indicate favorable industries, in which, as a result, cheap stocks can usually also be found.

An industry-wide crisis such as a rise in the price of raw materials or temporary changes in the market environment of an industry can temporarily devalue an entire industry. Look at our Sector Analysis Tool to view entire sectors with their key ratios. 

As a result, these industries often show a low price / book value ratio. In the industry, you can then look for stocks that actually show little real economic loss in the industry. However, the stock price of these companies is devalued because the entire industry is currently suffering “image damage” and is not “in vogue” due to negative reporting. These investments can then be very profitable in the long run. 

In 2020, the share price of the car maker Tesla skyrocketed. Like a magnet, this stock soaked up capital and made Elon Musk, the founder of Tesla Motors, the richest man in the world. The Tesla hype has caused the valuation of Tesla shares to explode. At price highs, a Price to Book Ratio of over 40 was accepted for Tesla in order to participate in the hype.

Almost quietly and secretly, all German carmakers were devalued and the shares of Daimler and VW fell parallel to the rise of Tesla. Daimler and VW were dirt cheap with a P/B under 1. It seemed as if the old German car giants were not able to bring a decent electric car onto the market, the market participants lacked a raging story with growth fantasies. In addition, VW suffered from the final effects of the Dieselgate scandal. A double bargain?

Of course, one of the largest automakers in the world with an excellent sales network and the best engineers in the world is capable of producing at least as good electric vehicles – if they have to. With the introduction of new electric models from Mercedes and VW, the throne of the electric car pioneer is crumbling. The true intrinsic value of a stock tends to come to light sooner or later.

In 2021, Tesla’s share price shows a decline and the German carmakers were able to catch up. The P/B has reliably indicated a current bargain in the car industry and in the individual stocks. In this situation, of course, one had to assess whether a “Nokia effect” could occur and the German carmaker would completely disappear from the scene and Tesla would become the new Apple of the automotive industry.

The price of the Daimler and VW shares recovered strongly. In order to recognize such industry effects, we have set up an industry overview in the which shows the average P/E, P/B and P/S figures for each industry. If an industry is valued favorably, the industry turns green and within seconds you can see in which industries bargains are very likely to be found. Try our Tools now within our free trial.