Definition

Median Price to Book (PB) Value is a financial metric used to compare a company's market value to its book value, with the median value representing the middle point of PB ratios within a specific group of companies or an industry.

Formula

PB Ratio = Market Price per Share / Book Value per Share

How to use the valuation method

The PB ratio is used to assess whether a stock is undervalued or overvalued by comparing its market price to its book value. A PB ratio below 1 may indicate that a stock is undervalued, while a ratio above 1 might suggest it is overvalued. The median PB value helps investors understand how a particular company's PB ratio compares to its peers or industry standards.

Which industries it work best in

The PB ratio works best in industries with significant tangible assets, such as manufacturing, utilities, and financial services, where book values are more reflective of the company's actual worth.

Which industries it does not apply to and why

The PB ratio is less applicable to industries with high intangible assets, such as technology and service sectors, because book value may not accurately capture the value of intellectual property, brand, or human capital.

Summary

The Median Price to Book Value is a useful tool for evaluating a company's market valuation relative to its book value, particularly in asset-heavy industries. It provides insight into how a company's valuation compares to its peers, but may not be as effective in industries where intangible assets play a significant role.