Price/book (projected) for a stock is the ratio of the company’s most recent month-end share price to the company’s estimated book value per share (BPS) for the current fiscal year. Book value is the total assets of a company, less total liabilities. Morningstar calculates internal estimates for the current year BPS based on the most recently reported BPS and average historical book value growth rates. Price/book (projected) is one of the five value factors used to calculate the Morningstar Style Box. For portfolios, this data point is calculated by taking an asset-weighted average of the book value yields (B/P) of all the stocks in the portfolio and then taking the reciprocal of the result.
Benefits
The price/book ratio can tell investors approximately how much they’re paying for a company’s tangible assets, based on accounting valuations. Assets are usually valued on a company’s books at the historical acquisition cost, less any depreciation. The book value may be different than the current market value for those assets and the stock price may reflect that. Also, book value often excludes intangible assets, such as patents, trademarks, and brand names; therefore, companies with a lot of intangible assets often have larger price/book ratios. Value investors frequently look for companies or portfolios that have low price/book ratios.
Origin
Morningstar generates this figure in-house based on stock statistics from our internal equities databases. For stocks, this figure is calculated monthly. For funds and portfolios, Morningstar updates this figure upon receipt of the most-recent portfolio holdings from the asset manager.