The Book to Market ratio is equal to a company's Book value per share / Current share price
It is the inverse of the price to book ratio. Thus be careful with your interpretation. For example a high Book to Market ratio shows that a company may be undervalued (the company’s market value is low compared to its book value). This would be the same as a low Price to Book ratio.
Why use book to market and not price to book?
To find out why we recommend that you use book to market and not price to book to look for undervalued companies take a look at this article:
Why use book to market and not price to book?
How to use the ratio
Available as a screening ratio: Yes
Available as an output column ratio: Yes (Look for it under the Valuation heading)
How to select the highest Book to Market companies
To find companies with the highest Book to Market ratio (low price to book) set the slider from 0% to 10%.
This may sound counter intuitive but we set the sliders so that selecting low percentages gives you most undervalued companies. If you are unsure if you are screening correctly select both book to market and price to book as output columns to compare the results with different slider settings.
How to Find Long-Term Compounders with the Faustmann Ratio
In The Dao of Capital, Mark Spitznagel highlights the Market Cap to Net Worth ratio to find stocks that are cheap compared to their assets. This ties in perfectly with the Book to Market ratio.
In the screener:
- Select Book to Market as an output column
- Click the column heading to sort your screen results by Book to Market from high to low. → This helps you find stocks the market is underpricing.
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