The P / E ratio (P / E) and the NAV ratio (P / B) are two ways to assess whether the price of a tranche of stock is reasonable, with the latter compensating for the blind spots in the use of the former。

What is the share price to net worth ratio.？

Price to Book Ratio (P / B), also known as price-to-book ratio and price-to-book ratio, is an indicator used to measure risk, and the relationship between the share price and the net value per share can be used to determine the reasonableness of the company's current share price and assist investors in determining whether the share price is undervalued.

Share price-to-net ratio formula

The NAV ratio (P / B) is the result of dividing the share price by the NAV per share, indicating that the company's share price is several times the NAV, usually with a cutoff point of 1 - when P / B < 1, the share price is undervalued。

Among them, net worth per share (NAVPS) is used to measure the value of a company's stock and is also a financial indicator used to assess the company's ability to operate, calculated by dividing the net worth by the number of shares issued.。

Net worth, also known as shareholder's equity (Shareholder's Equity), is the total amount of cash that a company can exchange for after selling all its assets.。The net worth of a listed company is the value of total assets (Total Assets) minus total liabilities (Total Liabilities) and intangible assets (Infinite Assets), which represents the original value of the company.。

Assets such as plant, machinery and equipment, land, etc., are the source of the company's profitability.。The higher the total assets, the higher the company's earnings, the higher the net worth will follow, the higher the value of the company, the strong financial resources.。

The NAV ratio can be used to observe the relationship between the current share price and the NAV, and is used to compare the company's book value with the current share price to determine whether the current share price is in a reasonable position。

The meaning of the net share price ratio.

In general, the NAV ratio is usually cut off at 1 - when P / B < 1, the share price is undervalued; when P / B < 1, the share price is more expensive, and if you buy at this time, the potential payoff is relatively low。

However, the NAV ratio is not applicable to all types of stocks and is most commonly used on boom-cycle stocks and companies with unstable profits to assist investors in assessing the reasonableness of current share prices.。

The relationship between the P / E ratio and the NAV ratio

Both the net share price ratio (P / B) and the P / E ratio (P / E) are commonly used valuation metrics and are widely used to assess whether a share price is currently undervalued or overvalued and whether there is a buy point。

P / E ratio

The P / E ratio is based on the relationship between the current share price and earnings per share to assess the reasonableness of the share price, and the results reveal the annual earnings profile and extrapolate how long it will take to recover the cost of the share price.。A low P / E ratio means that the share price is undervalued, and a high P / E ratio means that the share price is overvalued.。

In general, the P / E ratio applies to the evaluation of a company with stable profit growth, while for companies with unstable profits and losses, it is easy to distort the stock price by this indicator.。

Share price to net worth ratio (P / B)

The NAV ratio, on the other hand, is a further assessment of the reasonableness of a company's share price based on the relationship between the current share price and NAV per share.。A low NAV ratio means that the current share price is undervalued and the potential compensation is relatively high; conversely, a high NAV ratio means that the share price is currently expensive and the potential compensation is relatively low。

In terms of valuation, the NAV ratio is more suitable for assessing boom-cycle stocks or stagnant industries。The operations of such companies are affected by the boom or lack of growth。The use of the P / E ratio to assess is prone to miscalculation, so it is necessary to use the NAV ratio as a basis for measuring the reasonableness of the share price by comparing the company's book value with the current share price.。

SUMMARY

The net share price ratio (P / B) is a suitable indicator for assessing whether the share price is at a reasonable level for companies with cyclical stocks and unstable potential.。Note that when using the NAV ratio, don't look at the NAV ratio < 1 and get into the market all at once, and get a better understanding of the company's operations。

If it is a long-term loss-making company, even if the assessment results that the stock price is undervalued, it should not be rashly invested, because the unprofitable company, the stock price is usually flat or continued to fall, at this time the entry is easy to be trapped for a long time.。