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How to Use The Price to Book Ratio in your Stock Analysis

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June 26, 2008 – Comments (1) | RELATED TICKERS: LEH , RSF.DL , BDT

Everyone knows how to use the Price to Earnings (P/E) ratio, but few understand that there are many other extremely useful ratios, including the Price to Book (P/B) value. Many closed end funds, such as RMK Strategic Income Fund (NYSE: RSF) and BlackRock Strategic Dividend Achievers Trust (NYSE: BDT) have a P/B value below 1, meaning that they are undervalued according to their assets. Other companies, like Lehman Brothers (NYSE: LEH) have P/B values below 1, meaning that according to their most recent quarterly earnings, they are also significantly undervalued based on their assets.

Although this is not a perfect ratio, it can be extremely informative. For the complete article on understanding P/B, click here.

1 Comments – Post Your Own

#1) On June 26, 2008 at 1:05 AM, awallejr (84.39) wrote:: Only problem with using such analysis with respect to financials is you really don't know the true value of their assets. So, in effect, that p/b can be misleading. I have always stated that the true value of any asset is what a good faith purchaser is willing to pay for it at the moment, no more no less.
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