How do you know if a UK stock is undervalued?

Compare its share price to its intrinsic value — the discounted value of the cash the business will generate. If the price sits meaningfully below that, and the company has strong returns on equity and low debt, it may be genuinely undervalued rather than simply cheap.

Are UK shares cheaper than US shares?

UK-listed companies have generally traded on lower valuation multiples than comparable US companies in recent years. That can create opportunity, but a lower multiple alone doesn't make a share good value — the underlying business quality still has to hold up.

What is a value trap?

A value trap is a share that looks cheap but is priced low because the business is genuinely declining. Checking return on equity, cash flow and debt levels is what separates a real bargain from a value trap.

Home / Learn / Price-to-book ratio (P/B)

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Price-to-book ratio (P/B)

The price-to-book ratio compares what the market will pay for a company against the net assets on its balance sheet. It was Benjamin Graham's favourite starting point, and it remains one of the fastest ways to spot a business trading below what it owns.

By Nathan Wickham-Hurd · Founder, Oak Growth · First-class Economics & Finance, MBA · Last reviewed July 2026

The formula

P/B = Share price ÷ Book value per share

Or equivalently: market capitalisation ÷ shareholders' equity

Book value is simply total assets minus total liabilities — the figure at the bottom of the balance sheet. It is what would notionally remain for shareholders if the company sold everything and cleared its debts.

A worked example

A company has total assets of £8bn and total liabilities of £5bn.

Book value = £8bn − £5bn = £3bn

It has 500m shares in issue, so book value per share = £3bn ÷ 500m = £6.00

The shares trade at £4.50.

P/B = £4.50 ÷ £6.00 = 0.75

The market is valuing the business at 75% of its net assets.

What counts as a good P/B

Below 1.0 — the market values the company at less than its net assets. Worth investigating, and rarely an accident.

1.0 to 3.0 — ordinary territory for most established businesses.

Above 3.0 — the market is paying a large premium over assets, usually for brands, software or growth that the balance sheet does not capture.

Those bands mean little across industries. Banks and insurers hold assets that are mostly financial and readily valued, so P/B is genuinely informative there. A software company's real assets are code and customer relationships, which barely appear on a balance sheet — a P/B of 12 tells you almost nothing.

Why a low P/B is not the same as cheap

This is where the ratio catches people out. A P/B of 0.6 says the market disagrees with the balance sheet. Sometimes the market is wrong. Often it is not.

The three usual reasons a company trades below book. The assets are worth less than stated (ageing plant, doubtful loans, goodwill from a bad acquisition). The business is losing money, so book value is shrinking each year. Or the assets earn a poor return, in which case owning them is not worth much.

That last point is the important one. Assets only have value if they generate profit. A company sitting on £3bn of assets earning 2% is worth far less than one earning 20% on the same base — which is why P/B should always be read next to return on equity. Low P/B with high ROE is interesting. Low P/B with low ROE is usually a value trap.

How it fits with other measures

P/B tells you what you are paying for assets. P/E tells you what you are paying for profits. A discounted cash flow estimates what the future cash is worth today. None of them is sufficient alone, and they frequently disagree — which is informative in itself.

See P/B alongside intrinsic value on 1,000 companies

Oak Growth scores every company on Buffett's four pillars — moat, management, economics and value — so you can see whether a low price reflects a genuine discount or a declining business.

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Common questions

What is a good price-to-book ratio?

Below 1.0 means the market values the company at less than its net assets, which is worth investigating. Between 1.0 and 3.0 is normal for most established businesses. The ratio is only meaningful compared with companies in the same industry.

Is a low P/B ratio always good?

No. A low P/B often means the assets are overstated, shrinking, or earning a poor return. Read it alongside return on equity — low P/B with strong ROE is interesting, low P/B with weak ROE is usually a value trap.

How do you calculate book value per share?

Take total assets minus total liabilities to get book value, then divide by the number of shares in issue. Both figures come from the balance sheet.

Why is P/B useless for technology companies?

A balance sheet records physical and financial assets. A software company's real value sits in code, brand and customer relationships, which are largely absent from it — so book value understates the business and P/B looks artificially high.