The price-to-book ratio is a valuation metric that is calculated by taking the share price of a given company and dividing it by the book value of its equity. The book value of equity, for its part, is the value of a company’s assets understood as the difference between the book value of assets minus the book value of liabilities.
The P/B ratio can be instrumental in locating cheap stocks, or stocks that might be overlooked by the market. If a company’s P/B ratio is less than 1, this indicates that its stock is trading for less than its book value.
Since book value precludes any notion of intangible assets, it is not a metric that can be applied to all types of companies. It works better for companies that deal in real property/assets such as merchandise than it does for companies whose assets are essentially intellectual property rights (like in much of the tech sector).
The following service sector stocks represent U.S. companies selected for market cap (small), and a P/B ratio of 1 or less:
RadioShack Corp. (RSH) – The once ubiquitous electronics retailer has a market cap of $323.73 million, with shares currently trading at $3.25. RadioShack’s P/B ratio is currently 0.08.
Monster Worldwide Inc. (MWW) – The online job-search site has a market cap of $524.61 million, with shares currently trading at $4.49. Monster Worldwide’s P/B ratio is currently 0.57.
American Greetings Corp. (AM) – The greeting card service has a market cap of $578.38 million, with shares trading at $18.28. American Greetings has a P/B ratio of 0.90.
TravelCenters of America LLC (TA) – The truck stop chain has a market cap of $320.21 million, with shares currently at $10.84. TravelCenters has a P/B ratio of 0.91.
PharMerica Corp. (PMC) – PharMerica is a pharmacy chain that operates throughout the country. With a market cap of $423.90 million, the company’s shares are trading at $14.35, and its P/B ratio is currently 0.96.
Pantry Inc. (PTRY) – The grocery store chain has a market cap of $313.54 million, with shares trading at $13.28. The company has a P/B ratio of 0.98.
OfficeMax Inc. (OMX) – The office supply retail chain has a market cap of $1.03 billion, with shares trading at $11.85. The company’s P/B ratio is exactly 1.
Ruby Tuesday Inc. (RT) – Ruby Tuesday is a restaurant chain with a market cap of $542.34 million, with shares trading at $8.79, and a P/B ratio of 1.
