The Price-to-Book (P/B) ratio compares a company's market value to its book value (net assets on the balance sheet). It is calculated as Market Price per Share ÷ Book Value per Share. A P/B ratio below 1 can suggest a stock is undervalued, potentially trading for less than the company's net assets, while a higher ratio may indicate that investors expect strong future returns, intangible asset value, or superior profitability not captured on the balance sheet.

That said, the P/B ratio should not be used in isolation. It is most useful for asset-heavy businesses like banks, insurers, or manufacturers, where book value closely reflects economic reality. For companies in tech, services, or other asset-light industries, book value may understate intangible drivers like brand, intellectual property, or human capital. In such cases, the P/B ratio can be misleading and should be supplemented with other valuation measures.