The P/B ratio is a way to identify companies that are either undervalued or overvalued. The share price and book value are compared to one another; their relationship is of value to any investor, particularly one who puts great emphasis on value.
P/B provides a way to find the stocks that are low priced and overlooked by the market. Typically if the P/B is under one or is at less than book value, it tells a person that the asset value is inflated or that the company has weak return on its assets.
P/B shows an investor who wants to see growth when that happens; a P/B under one can indicate undervalued stock, while a P/B over one can indicate overvalued stock. These three stocks are trading under book value right now: Chimera Investment Corporation (NYSE:CIM), Harmony Gold Mining Co. (ADR) (NYSE:HMY), and BioScrip Inc (NASDAQ:BIOS).
Chimera Investment Corporation (NYSE:CIM) closed at $14.06. Its book value was at a P/B ratio of 0.83, which is above the average in its industry (0.57). Looking over the last five years, the company’s sales rose by 14.40% a year (average), with a decrease in net income by about -28.50% for its rate.
As for Harmony Gold Mining Co. (ADR) (NYSE:HMY), it has had a 52-week range of $0.92 to $3.23, with a recent close at $1.09. The P/B ratio is at much lower than industry average; the stock is at 0.98, while average for its industry is at 4.76. Shares have increased over the last three months by about 7.81%.
BioScrip Inc (NASDAQ:BIOS) closed at $2.07 for a share and its P/B ratio is at 0.60. That ratio is significantly less than the industry average of 4.27. The earnings for the company per share was down by about 15.70%, in terms of its average rate.