Price-to-book compares share price with book value per share. It is often used for banks, insurers, REITs and asset-heavy businesses.
Low price-to-book is not always cheap
If asset quality is weak, credit risk is rising or returns are low, a low multiple may simply be justified.
Returns determine fair multiples
Financial companies that sustain higher ROE can usually command higher price-to-book multiples. Asset quality and profitability must be analysed together.
